Nexa Mortgage is attempting to move one case to federal court after a state judge ordered it to pay over $13,000 in sanctions.

PPI Drives Decent Rally; But CPI Packs a Bigger Punch

This morning’s core m/m Producer Price Index hit 0.0% versus a median forecast of 0.2%.  Unsurprisingly, the friendly inflation reading resulted in immediate but reasonably subdued gains for the bond market.  It goes without saying that PPI will always be 2nd fiddle to CPI (the Consumer Price Index).  With CPI looming tomorrow morning, it’s no surprise to see bonds avoid getting too carried away trading today’s data.  The reaction would likely be quite a bit more aggressive if we see a similarly big drop/miss in tomorrow’s CPI data.

Econ Data / Events

Core Producer Prices m/m

0.0 vs 0.2 f’cast, 0.3 prev
last month revised down 0.1

Core Y/Y PPI

2.4 vs 2.7 f’cast, 3.0 prev

Market Movement Recap

08:34 AM A hair stronger overnight with modest additional gains after PPI.  MBS up an eighth and 10yr down 2.8bps at 3.877

10:53 AM Initial rally stalled out at 9:30, but without a major correction.  MBS still up an eighth and 10yr down 4bps at 3.866 (up from lows of 3.848)

02:38 PM Sideways to slightly stronger near the days best levels.  MBS up 6 ticks (.19) and 10yr down nearly 5bps at 3.857

04:24 PM Heading out near the day’s best levels with MBS up 7 ticks (.22) and 10yr yields down 5.7bps at 3.848.

If you’re just here to keep an eye on daily changes in mortgage rates, today was solid.  There was a modest improvement versus yesterday and the average lender is almost perfectly in line with 6.5% when it comes to top tier conventional 30yr fixed rates. For those interested in more of the nuts and bolts, today’s improvement came in response to a lower-than-expected reading in this morning’s key economic report, the Producer Price Index (PPI).  PPI measures inflation at the wholesale level and occasionally has a fairly decent impact on rate when the results are much higher or lower than forecast.  Today’s results were lower.  Bonds/rates hate inflation.  As such, rates improved after these results. But there is another inflation report that packs a much bigger punch than PPI and it will be out tomorrow morning.  The Consumer Price Index (CPI) measures inflation at the retail level.  Along with the similar PCE inflation that will be out in 2 weeks, CPI represents the inflation metric that the Federal Reserve would like to see at 2%. To be clear, year over year core inflation has no chance of hitting 2% tomorrow, but monthly inflation readings would merely need to keep doing what they’ve been doing in order for the Fed to be convinced that 2% annual inflation is a near certainty. There’s no way to know ahead of time whether the data will be friendly or damaging–only that CPI is responsible for some of the biggest spikes and drops over the past few years.

“I ordered a book titled, ‘How to scam people online’ two months ago. It still hasn’t arrived yet.” Let’s open today’s Commentary with a couple topics that “bookend” lending. On the secondary marketing end, the current state of buybacks, Freddie Mac’s 2nd mortgage program, mandatory versus best efforts spread, and long-term lock demand by LOs have been hot topics, and these will be covered in “The Capital Markets Wrap” today at 12 PT/3PM ET for 45 minutes featuring Rob Kessel, Marcus Lam, and Ira Selwin. In the primary markets, the “LO 1099?” question continues to be brought up, especially by LOs doing their own research in their own states. “Show me where it says I can’t do that that!” is something no compliance person wants to hear. Lenders should hesitate to jump into claiming mortgage originators are “1099 employees” without other changes to the typical relationship, especially given the kinds of penalties typically found with income tax violations. Oh, and blindly compensating your originators differently for brokered loans? Nothing’s changed since the CFPB Supervisory Highlights seemed to make that a clear violation. (Today’s podcast is found here and this week’s is sponsored by Truv. Truv lets applicants verify income, employment, assets, insurance, and switch direct deposits. Unlock the power of open finance, with Truv. Hear an interview with California MBA’s Susan Milazzo on what to expect at next week’s Western Secondary Conference in Los Angeles.) Lender and Broker Software, Services, and Products

Although last month’s CPI data was well-received by the bond market for coming in below expectations and showing a notable drop in the shelter component, the producer price index was much higher than expected.  While bonds were able to look past the headline and ultimately stabilize, it nonetheless raised questions about the risks of choppy inflation readings persisting.  Today’s PPI release not only revised last month’s a bit lower, but also came in significantly lower than expected at the core level.  Bonds aren’t rushing to trade it as proof positive of a repeat with tomorrow’s more important CPI data, but it’s certainly not hurting so far this morning.

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