Love it or hate it, election-related volatility has been having a big impact on the bond market and, thus, mortgage rates.  Most of the volatility has resulted in higher rates, but there was an exception over the weekend.  Due to a combination of shifting odds in betting markets and among pollsters, rates recovered a portion of the ground lost last week. Mortgage rates didn’t react in an extreme fashion, but the average lender moved back down toward 7% for a top tier conventional 30yr fixed scenario.  The same scenario was closer to 7.125% late last week. To whatever extent we’ve seen election-related volatility so far, it’s a fair expectation that we’ll see follow-through after a winner is confirmed.  Our best read on prevailing sentiment is that a Trump victory will cause rates to move even higher whereas a Harris victory would lead to a friendly correction.  This is based on a assessment of how bonds have moved relative to several measures of election odds in addition to feedback and commentary from a substantial majority of analysts and traders. NOTE: these are only the outcomes associated with the immediate future.  No one really knows how rates would fare in the longer term.  There are scenarios where rates could move lower in a Trump administration and higher in a Harris administration.  

Someone’s making money out there, right? Freddie and Fannie continue to earn billions, with a good chunk coming from g-fee income, and see hundreds of billions flow through their systems every quarter (for those playing along at home, their net worth, $90.5 billion for Fannie, $56 billion for Freddie, is healthy, but healthy enough to survive another 2008?). Lenders have seen their compliance & legal costs increase. (The CFPB announced that it had settled its fair lending case with Townstone Financial on Friday. Here is attorney Brian Levy’s take on the settlement from his Mortgage Musings blog. Sign up here if you want to get an email whenever Levy sends out his Musings.) There are rumors of another price increase from Fair Isaac, up from the current $3.50 per score; the parent of FICO’s stock price has doubled in one year to nearly $2,000 per share. Agency g-fees and credit reports factor into the cost of a loan. But compensation is still, by far, the largest cost component on any loan. (An informal poll indicates that LOs are often paid for 30 days after they leave.) (Today’s podcast can be found here, and this week’s is Sponsored by Calque. Partner with Calque to offer better loan solutions. Scale your business with a partner that puts your brand first and empower your clients to buy before they sell. Hear an interview with Rob Chrisman on takeaways from MBA Annual.) Lender and Broker Software, Services, and Products “In today’s competitive mortgage marketplace, customizing workflows and borrower experience is crucial to differentiation. With the industry-first configurability of Maxwell Point of Sale, lenders can define workflows for any mortgage product, while configuring triggers and business rules to align the borrower experience to operational processes. Maxwell Point of Sale also features more than 60 third-party integrations, allowing lending teams to seamlessly connect with other vital pieces of their workflow, from credit and verifications to pricing and disclosures. Maxwell Point of Sale also sees a 14% increase in pull-through from Rate Lock to Close on the vs a top competitor. Want to learn more? Let us know and we’ll show you what Maxwell can do for you and your borrowers.”

Up until last Friday, 10yr Treasury yields had consistently closed at 4.27-4.28 last week.  Now this morning, we’re at 4.27-4.28 again.  That’s the shortest way to explain that we’re not dealing with a meaningful rally.  It’s only impressive when considered against the weird, panicky starting point created by the weird, panicky sell-off on Friday. 

Another way to put this morning’s move into perspective is to remember that a 10-12bp rally right now is equivalent to a 3-4bp rally during more normal times. As for justification, the approaches are limited to two options: shifting election odds and/or a reversal of a pre-weekend position dump that’s now being reversed–probably a combination of the two.

Esusu, Foyer, Divvy Homes and Tomo Mortgage are among the fintechs trying to give first-time homebuyers a break, alongside community development financial institutions like Southern Bancorp.

The Chicago-area lender, which at first was able to get the suit quashed, agreed to end the discrimination case by paying a $105,000 fine.

The wholesale lender filed a motion to dismiss the case, or at least to strike the class action certification in mid-October.

Remax, the real estate brokerage and mortgage broker franchisor of Motto Mortgage, rebounded from a year ago loss in a tough news cycle for both its businesses.

Economists cautioned that October’s employment report may not provide a fully accurate representation of the economy due to recent hurricanes.

HomeStreet and FirstSun are working to devise a new formula after the Texas Department of Banking and the Federal Reserve declined to approve their merger application.

Why Bonds Tanked Despite Super Low NFP

Nonfarm Payrolls (NFP) came in at 12k versus a median forecast of 113k, and a previous reading of 254k.  If those were the only facts you knew, on almost any other jobs report day in the history of jobs report days, you’d be well advised to bet heavily on a bond rally.  The fact that bonds tanked can only be explained by an unknown combination of two things–maybe 3.  We’re all already family with bonds generally weakening ahead of the election.  That could be an ongoing factor behind today’s weakness. But there’s also some nuance in the jobs report if we agree that the payroll count was artificially distorted by temporary events.  Lastly, ISM prices rose to the highest levels of the year. This could have some traders thinking “what if inflation has another bounce like it did in early 2024?” This might seem like a longshot, but bonds were still in positive territory by the time ISM came out. 

Econ Data / Events

Nonfarm Payrolls

12k vs 113k f’cast, 223k prev

Unemployment Rate

4.1 vs 4.1 f’cast, 4.1 prev

ISM Manufacturing

46.5 vs 47.6 f’cast, 47.2 prev

ISM Prices

54.8 vs 48.5 f’cast, 48.3 prev

Market Movement Recap

10:07 AM Initially stronger after NFP, but losing ground since 8:50am ET.  MBS still up 3 ticks (.09) but 10yr unchanged at 4.287

11:09 AM Additional weakness.  MBS down an eighth on the day and 10yr up 5.4bps at 4.34

01:43 PM Weakest levels.  10yr up 7.8bps at 4.364.  MBS down 6 ticks (.19).

04:47 PM going out at new highs for 10s, up 9.8bps at 4.385, and new lows for MBS, down 7 ticks (.22) in 5.5 coupons.