The revisions also revise how the surplus is calculated to evaluate risk of the bonds used as part of the available asset portion of the capital requirements.

If efforts to make AI-based loan decision models less discriminatory degrade accuracy, that is problematic for the entire industry.

It May Have Seemed Like a Bad Day, But…

Ever since topping out last Thursday morning, bonds have been steadily recovering.  Each subsequent trading day has seen lower closing yields with yesterday’s roughly matching NFP Friday’s, also incidentally the lower end of the prevailing range at 3.80%.  Whether it was a range-bound bounce or the result of decent economic data, bonds respected the range and moved several bps higher today.  It may have seemed a bit overdone at times, but consider the closing levels under 3.86% in a 3.8-4.0 range.  Volatility risks increase on Friday with Powell’s Jackson Hole appearance.  Drama is not guaranteed, but there’s a chance the market walks away with increased clarity regarding the Fed’s play book for early September data and the size of the rate cut.

Econ Data / Events

Jobless Claims

232k vs 230k f’cast, 227k prev

Continued Claims

1863k vs 1870k f’cast, 1859k prev

S&P Services PMI

55.2 vs 54 f’cast, 55.0 prev

S&P Manufacturing PMI

48.0 vs 49.6 f’cast, prev

Market Movement Recap

08:40 AM Modestly weaker overnight with no major change after claims data.  MBS down an eighth and 10yr up 3.7bps at 3.838.

09:48 AM Small recovery into 9am hour, but now a bit weaker after PMI Data.  MBS back down an eighth and 10yr up 3.6bps at 3.838.

02:30 PM Bouncing back a bit from the weakest levels of the day.  MBS down 7 ticks (.22).  10yr up 5.7bps at 3.858.

After moving lower for 4 straight days to hit the 3rd lowest levels in more than a year, mortgage rates bounced just a bit higher today.  This was the first day of the week with meaningful economic data and the bond market (which dictates rate movement) frequently takes cues from such data. In today’s case, the data was generally not helpful for rates because it failed to show any dire warning for the state of the economy.  Weekly Jobless Claims continued to operate in a historically normal range and, in separate data, a closely watched index on the health of the services sector came out stronger than expected. The bond market lost ground after those reports, in addition to modest losses that occurred during the overnight session.  As a result, mortgage lenders were forced to nudge rates just a bit higher compared to yesterday’s latest levels.  All that having been said, instead of being the 3rd best day for rates in over a year, today is merely the 4th best.

Existing Homes (the jargon word for a home that has already been owned and occupied) represent a much larger piece of the home sales pie compared to new homes, but the series has  been flagging at historically low levels. When rates dropped at the end of 2023, existing sales perked up a bit, but had been moving back toward the long term lows recently. As of the last report, the annualized pace of sales had fallen from just under 4.4m to 3.9m–very close to October 2023’s 3.85m–the lowest reading in more than a decade. With today’s update, we’re suddenly back in business!  OK, that’s an exaggeration, but we’re at least suddenly surviving for one more month without sliding to deeper depths. The official annualized tally for July was 3.95m which was a hair higher than the 3.93m forecast. Other highlights:
Inventory up 0.8% m/m and up 19.8% y/y
Median price: $422,600, up 4.2% y/y
Average time on market: 24 days, up from 22 days in June
First time buyers accounted for 29% of sales, same as last month
Cash sales accounted for 27%, down from 28% last month, but up from 26% last year
Investors accounted for 13%, down sharply from 16% last month and last year
Regional sales breakdown:
Northeast, up 4.3% from June and up 2.1% annually
Midwest unchanged from June and down 5.2% annually
South up 1.1% from June and down 3.8% annually
West up 1.4% from June and also up 1.4% annually

“Great news! I got the whole plane to myself! The large group going to the psychic’s convention all cancelled at the last minute.” (No, this didn’t happen my flight to Orlando last night. It was, however, delayed four times for 90 minutes.) But speaking of news, frankly, I don’t see how the senior management of lenders and vendors keep up on the news with everything that is going on. Tomorrow on TMC’s Friday Rundown is Shelley Leonard who will be discussing the rationale behind the credit report costs as well as the acceptance of the tri-merge/bi-merge move. Many LOs remember when the FTC banned certain noncompete agreements. Well, fuhgeddaboudit. A ruling by US District Judge Ada Brown has halted the Federal Trade Commission’s ban on noncompete agreements, citing the agency’s lack of statutory authority. The ban was intended to promote competition and prevent wage suppression. My guess is that an appeal is in the works. (Today’s podcast is found here and this week’s is sponsored by Candor. Candor’s authentic Expert System AI has powered more than 2 million flawless, hands off underwrites. Every credit risk decision Candor makes is backed by a Warranty, eliminating repurchase worries. Hear an interview with Steve Richman on public speaking trials and tribulations, the unpredictability of entrepreneurship, and what is important to originators now, based on his travels around the nation.) Lender and Broker Software and Services Revolution Mortgage cuts verification costs from 8 to 3 basis points. This is efficient operations, says Femi Ayi, Revolution Mortgage. Save up to $20K/month and reduce costs by 80% with Truv. See Truv in action.

There is an ongoing bias toward better buying and lower yields in the bond market in spite of a string of decent economic reports in the past week.  Just this morning, we have 2 of the week’s most relevant reports coming in at levels that could easily be used to justify a nominal in-range correction, yet yields remain much closer to the lower end of the consolidation range.

The important takeaway from the chart above is that 2024 claims have been running mostly below 2023 claims in addition to following a normal seasonal pattern, for the most part.

Fay disputes claims it violated servicing laws and a previous order related to dual tracking allegations but agreed to settle without admission of wrongdoing.

A federal judge in Texas ruled the Federal Trade Commission’s noncompete ban violates the Administrative procedures Act and exceeds FTC’s statutory authority.

Industry economists are now confident about predictions for mortgage rate movements through the end of next year; the question is if that translates to increased home sales.