Summer has officially come and gone; the autumn equinox was yesterday. Columbus Day, Halloween, Veteran’s Day, and Thanksgiving are in the coming months. Here in Chicago (which knows how to celebrate) I spent some time in preparation with Garth Graham of STRATMOR who is noticing the market reactions to the decline in interest rates. Many lenders are encouraged that this could be a bump up for purchase business, but Garth believes there could be a divide in who benefits from the pickup in the purchase market. Among his observations is that recent legal developments affecting the real estate agents may result in consolidation in that business even as the business itself picks up, which he explains in this article. While we’re on legal issue implications, the Loan Originator Compensation Rule has been a thorn in the side of the mortgage industry since 2011 and in his latest Mortgage Musing, comparing LO Comp to the Berlin Wall, attorney Brian Levy again criticizes this uniquely anticompetitive price fixing rule that prevents mortgage commission negotiation at the expense of all consumers. (Today’s podcast is found here and this week’s is Sponsored by Silk Title Co. Silk is for lenders who have centralized operations, are tech driven, process oriented, focused on the borrower experience, standardized in their approach, and most importantly… collaborative. Listen to an interview with ALTA’s Chris Morton on a the previously rejected Fannie Mae pilot program that would have waived the requirement for lender’s title insurance on certain refinances under the guise of lowering housing costs.)

We closed last week with the idea of “buy the rumor, sell the news” seemingly being a good way to think about the time leading into and away from the Fed’s 50bp rate cut.  While bonds looked to be leveling off in terms of the pace of selling on Friday, the new week is seeing a bit of a resurgence.  The still-strong S&P Global Services PMI this morning surely didn’t help.

It’s worth noting that the “selling the news” part of the current bond market weakness isn’t exactly the best way to look at things, largely because short term rates haven’t seen much selling. In fact, when it comes to the yield curve, we could simply say that the curve steepening (2yr doing better than 10yr) has continued apace both before and after the rate cut.  Before Fed day, it was bull steepening (2yr falling faster than 10yr) and after Fed day, it’s bear steepening (2yr rising less than 10yr). 

The Federal Housing Finance Agency has agreed to more regular checks on the government-sponsored enterprises’ flood compliance, which impacts mortgage companies.

Ally customers are blaming the bank for data breaches at its vendors, arguing that basic cybersecurity measures would have prevented the thefts.

This week, Federal Reserve Gov. Michelle Bowman cast the first dissenting vote at an FOMC meeting in years. On Friday, she explained why the economic data she’s seen didn’t convince her of the need to cut rates as much as her fellow governors thought.

While housing demand remains strained, national home price appreciation continued to make more room for buyers in August, according to First American.

A Senate budget bill includes language regulating the use of mortgage trigger leads, legislation that much of the industry supports.

Modestly Weaker But Ultimately Uneventful

In terms of the realized volatility relative to potential volatility, this week turned out to be about as calm as we could have possibly imagined.  It is truly stunning that we will not be able to look back on daily bond market charts and pick out the most interesting Fed meeting in years.  As for Friday, it was void of data and serendipitously weaker for bonds.  One could argue that it’s a simple continuation of “selling the news” after “buying the rumor,” but we’d argue motivations don’t matter when we’re only counting a few bps of weakness in 10yr yields that leave us at levels that are still lower than all but a a week and a half of the past year and a half.

Econ Data / Events

Jobless Claims

219k vs 230k f’cast, 231k prev

Philly Fed Index

1.7 vs -1.0 f’cast -7.0 prev

Market Movement Recap

09:50 AM Slightly weaker overnight with additional selling early.  10yr up 3.4bps at 3.746 and MBS down 2 ticks (.06)

10:38 AM Additional losses in 10am hour.  MBS down 5 ticks (.16) and 10yr up 4.6bps at 3.757

12:01 PM Bouncing back on Waller comments.  MBS down only 2 ticks (.06) and 10yr up 2.5bps at 3.737

04:05 PM Slipping a bit again with MBS down 5 ticks (.16) and 10yr up 2.6bps at 3.738

Credit where credit is due: the rate market did an outstanding job of getting out in front of the Fed rate cut as well as the changes to the Fed’s rate cut outlook as communicated in the summary of economic projections (SEP).   The SEP contains the proverbial “dot plot” that shows each Fed member’s base case for where the Fed Funds Rate will be over the next few years.  It has a strong tendency to cause volatility for bonds/rates.  This week, however, it didn’t have a big impact. If anything, the dot plot was helping point toward slightly lower rates on Fed day, but Fed Chair Powell’s press conference took things back in a more neutral direction.  Those counterbalancing forces meant that this week’s potentially volatile mortgage rate reaction ended up being remarkably flat all things considered.  Granted, rates did move a bit higher on Wednesday and Thursday, but a modest recovery on Friday left the week-over-week change almost perfectly flat.  That is a stunning level of stability considering the stakes. Another way to look at all of the above would be to say the Fed’s friendlier rate outlook was well understood by the market coming into the week and it would take major changes in economic data to drive the next big picture move.  To that end, early October is the most reliable source of big ticket economic data. Next week has a few potentially important reports as well, but not until Thursday and Friday.

“Someone asked me if I had plans for the fall. It took me a moment to realize they meant ‘autumn’ and not the fall of civilization.” The Autumn solstice is this weekend, and I will be heading to Chicago and then to Lincoln, Nebraska to visit with mortgage folks. Housing, of course, will be a topic: It will take more than the Fed’s rate cut to fix America’s housing problems. “Rob, are you hearing that new homeowners are having their insurance cancelled within weeks of funding, often due to “roofing issues”? Yes, I have. As we’ve been writing about for several months, renewal costs are going up, new policy prices are going up, carrier numbers are dropping, and drone usage is increasing surveillance. Keep in mind, however, that the insurance industry isn’t wantonly doing it. In the last few years insurance companies have taken underwriting hits, suffered from inflation in replacement costs, properties have been under-insured given the premiums, and state-level insurance restrictions have prohibited market pricing. (Today’s podcast is found here and this week’s is sponsored by Visio Lending. Visio has a top-notch broker program and is the nation’s premier lender for buy and hold investors with over 2.5 billion closed loans for single-family rental properties, including vacation rentals. Hear an interview between Rob and Robbie on interest rate pricing and other chatter from their travels around the nation attending mortgage conferences.) Lender and Broker Software, Services, and Loan Programs