At the Most Powerful Women in Banking conference this week, New York’s top banking regulator said banks need to take full responsibility for the artificial intelligence models they use, even if they bought them from a third party.

The economy and the environment are impacting loan entries into forbearance, as well as their performance on exit, the Mortgage Bankers Association said.

Much Calmer, But Risks Remain

Bonds had a significantly calmer day in terms of day-over-day change.  In fact, by the 3pm close, both MBS and Treasuries were close enough to unchanged.  There was a bit of intraday volatility that saw bonds attempt to stage a little rally only to give it all up by the noon hour–the latest reminder that we’re dealing with some asymmetric risks over the next few weeks.  

Econ Data / Events

Housing Starts

1.354m vs 1.350m f’cast, 1.356m prev

Building Permits

1.428m vs 1.46m f’cast, 1.47m prev

Market Movement Recap

09:14 AM Initially weaker overnight, but back into positive territory by the open.  10yr down 2.2bps at 4.18 and 5.5 UMBS up 3 ticks (.09).

11:22 AM Back to weakest levels.  MBS unchanged and 10yr nearly unchanged at 4.199.

01:07 PM Worst levels just after noon, but bouncing back a bit now.  MBS up 1 tick (.03).  10yr unchanged at 4.202.

03:44 PM Drifting sideways since last update.  MBS up 1 tick (.03) and 10yr down 0.4bps at 4.198

Mortgage rates jumped to their highest levels since late July yesterday.  Underlying market movement wasn’t readily attributable to any singular headline or economic report.  Leading theories involve changes in election odds and more esoteric aspects of the bond market’s plumbing. The damage was much easier to quantify as it resulted in one of the bigger single day jumps seen in 2024 and certainly the biggest jump that occurred in the absence of an immediately obvious, quantifiable reason.   Today was much calmer although the average lender dialed rates up just a hair more. The day over day change was a modest 0.03%, bringing the average 30yr fixed rate up to 6.85% on top tier scenarios.   In general, it’s a good idea to plan for additional rate volatility through the first half of November at the very least.  

“An eye for an eye, Tooth for a tooth. Vote for me and I’ll set you free! Rap on, brother, rap on. Well, the only person talking about loving thy brother is the preacher. And it seems nobody’s interested in learning, but the teacher. Segregation, demonstration, integration, determination, aggravation, humiliation, obligation to our nation.” So sang The Temptations in “Ball of Confusion” from 1970. (Yes, 54 years ago.) Politics aside, some in our industry were confused when rates went up instead of down after the last Federal Reserve meeting, but face it, there has been a lot of positive economic news recently that has kept long term rates higher. The Fed can only control so much: Extreme weather across southern Asia has sent the price of black tea sharply upward, with the benchmark auction price of tea in northern India coming in up 30 percent year over year. Beyond heavy rains in June that hurt the harvest, a fungus has been afflicting India’s tea plantations. Harvests in Sri Lanka are likewise down, and the export markets are going to suffer the most: Japan, for instance, gets 60 percent of its black tea imports from India and Sri Lanka. (Today’s podcast can be found here, and this week’s is sponsored by nCino, makers of the nCino Mortgage Suite for the modern mortgage lender. nCino Mortgage Suite’s three core products, nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics, unite the people, systems, and stages of the mortgage process. Hear an interview with nCino’s Ben Miller on a topic that’s dominating industry conversations right now: artificial intelligence and machine learning.)

Monday was frustrating for the bond market.  It was a medium large sell-off that would have made more sense as a flat, forgettable Monday. The only thing remotely resembling a consensus on the rationale is the notion that election odds tilted toward Trump over the weekend and the market currently associates a Trump victory (specifically, a red sweep) with higher growth, inflation, Treasury issuance, and volatility. Tuesday is off to a much calmer start with bonds actually in slightly positive territory.  Once again, the calendar is empty in terms of market-moving econ data.
In the bigger picture, yesterday doesn’t necessarily look too far out of place.  It’s only offensive in light of the absence of apparent motivation. The chart below is a rarity on MBS Live as it includes moving averages (and we have some thoughts).  Each one has been completely disregarded on the way up.  Notable, there is not currently a way to calculate any moving average that is higher than yields over the past 2 days.  A 222-day average is closest and it’s about 10bps lower.  What now, moving average fans?

The complaint focused on 41 employees which allegedly accounted for $260 million in annual production volume.

Recent polling an industry group analyzed points to a range of outcomes that could create opportunities and risks for commercial and residential financing.

The Federal Housing Finance Agency issued a proposed rule for the Federal Home Loan Bank System that allows the FHFA director to set “reasonable” board compensation.

The real estate investment trust, while still separately traded, is now under the Rithm umbrella, and is taking on that brand as well as a new business model.