Appraisal appeal rules announced by Fannie Mae, Freddie Mac and FHA set to go into effect in three weeks, will now be required starting on Oct. 31.

The reverse mortgage lender is closer to profitability and plans to maintain its New York Stock Exchange listing status, executives said in an earnings call.

Bonds Selling Off Like it Was Always The Plan

Very little transpired during Wednesday’s trading session to change the outlook in the morning commentary.  With the volatility associated with Monday’s market shock out of the way, this week increasingly looks like the kind of token bond market correction/consolidation that frequently plays out on a relatively data-free week that follows a strong rally and that precedes a significant event (i.e. next week’s CPI).  This correction might have been more obvious at the start of the week had it not been for the global market shock associated with the Yen carry trade unwind.  As of today, it’s progressed far enough that we can begin to ask if we’ve seen enough for things to calm down.

Econ Data / Events

ISM Services

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ISM Biz Acitivity

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ISM Prices

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Market Movement Recap

08:36 AM Moderately weaker overnight but MBS recovering to unchanged levels.  10yr still up 3.5bps at 3.927

12:20 PM A bit of weakness before the noon hour, but roughly in lines with previous levels in MBS, down 1 tick (0.03).  10yr up 4.8bps at 3.942.

01:15 PM Weaker after 10yr auction.  MBS down 3 ticks (.09).  10yr up 7bps at 3.96.

02:44 PM Weakest levels of the day now with 10yr up 7.5bps at 3.968.  MBS down an eighth.

Yesterday saw one of the largest single day mortgage rate increases in years, although there were more than a few caveats.  We discussed those in greater detail in yesterday’s update.  Rather than attempt to condense and already-condensed explanation of esoteric market plumbing, here’s the link in case you missed it: https://www.mortgagenewsdaily.com/markets/mortgage-rates-08062024 Today was less exciting by comparison.  Bonds continued to lose ground, but mainly in the longer end of the yield curve (i.e. 10 and 30yr Treasuries were higher in yield while 2 and 3yr Treasuries were lower).  At the moment, mortgages have more in common with 5yr Treasuries than their normal 10yr Treasury benchmark.  As such, on a day where the 5yr is doing better than the 10yr, it’s no surprise to see mortgage-backed bonds doing a bit better than the 10yr would suggest. Nonetheless, rates moved modestly higher with the average lender now much closer to the 6.625% level on a top tier conventional 30yr fixed.   With that, the past 2 days end up looking like a typical correction following a sharp drop in rates.  The initial bounce is almost always the biggest with subsequent days losing steam.   There’s no way to know if this correction has run its course.  The global sources of volatility that made Monday so crazy could re-emerge, or we could see a new motivation come to light. Either way, the more important consideration is next week’s inflation data, which has more power than anything else on the near term calendar to set the next trend for rates. 

Some things are surprising, like this video of a small child being chased by a wild pit bull. (Parental discretion may be advised.) What if you’re a landlord in a rent control area, and your monthly insurance bill surprisingly just double or tripled, now what? You can’t pass that on to tenants. Although many expect rates to decline, the rapidity of the recent drop was surprising. How much of a shot in the arm can the industry expect? You can bet good money that whoever owns the servicing on that 7 or 8 percent fixed-rate loan, originated earlier this year or last year, has already reached out to that borrower. That would not be surprising. What would be surprising is if the originator, even though he or she doesn’t own the servicing any longer, hasn’t contacted the borrower with important points about refinancing, and made their value proposition clear. But talk to your capital markets team about EPO penalties! (Today’s podcast is found here and this week’s is sponsored by PHH Mortgage. If you are looking for a Correspondent Lending partner or an experienced, award-winning subservicer who can manage your forward and reverse, residential and commercial, and performing and non-performing loans, look no further than PHH. Hear an interview with the Institutional Risk Analyst’s Chris Whalen on ways to intelligently improve risk-based capital requirements.) Lender and Broker Software, Products, and Services “Truv income and employment verification (VOIE) and assets (VOA) are made for any customer. It doesn’t force you to combine different solutions to get the job done. It customizes the verification type for each customer to optimize conversion. How does it work? We have 3 ways to verify income: Payroll login, Bank Login and Document Upload. We use Smart Routing to decide if a customer goes through the Payroll login or the Bank login. This model was trained on over >10M of transactions. Smart Routing optimizes conversion based on what we know about the customer and the 300,000+ employers we’ve seen. We use our Document Upload process for cases where it doesn’t make sense to send the customer to a Payroll or Bank verification, or when a customer doesn’t complete the verification. Our process successfully verifies income in 75% or more of cases. Want to see how it works? Contact us!”

Coming into this week, the most logical base case was for a moderate correction in the bond market owing to the strong rally last week and the absence of data this week, all ahead of next week’s big CPI data.  The stronger-than-expected ISM data on Monday solidified that case.  The only problem was the massive global market volatility that peaked early Monday morning.  Now that stocks, USD/JPY, foreign bonds, VIX, etc. have all bounced, the week is falling more in line with the base case.  In fact, we are arguably slightly weaker at this point than the base case, considering 10yr yields are back above Friday’s levels.  The counterpoint is that the unwinding of the Yen carry trade began before Friday’s jobs report, so it could be that bond yields were a bit artificially strong at the end of last week.

As far as MBS outperformance is concerned, it’s notable today due to MBS being roughly unchanged while Treasuries are noticeably weaker.  But there’s a very big, very obvious catch, and it’s easy to see when we line up the movement in MBS and Treasuries over the past few weeks (note: this requires inverting MBS prices so the movement matches bond yields.  As such, lower=stronger for MBS in the following chart).

A drop in interest rates pushed mortgage applications sharply higher last week although nearly all the gains belonged to refinancing. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, increased 6.9 percent on a seasonally adjusted basis from one week earlier and was 6.0 percent higher before adjustment. The Refinance Index was 16.0 percent higher than the prior week and 59 percent above the level one year ago. The refinance share of mortgage activity topped 40 percent for the first time since March 2022, moving from 38.2 percent the prior week to 41.7 percent. [refiappschart] The seasonally adjusted Purchase Index increased 1.0 percent and 0.3 percent before adjustment. It was 11.0 percent lower than the same week in 2023.   [purchaseappschart] “Mortgage rates decreased across the board last week and mortgage application volume reached its highest level since January of this year,” according to Joel Kan, MBA’s Vice President and Deputy Chief Economist.  “The 30-year fixed rate fell to 6.55 percent, reaching its lowest level since May 2023, following dovish communication from the Federal Reserve and a weak jobs report, which added to increased concerns of an economy slowing more rapidly than expected, As a result of lower rates, refinance applications increased across all loan types, particularly for VA loans, and were almost 60 percent higher than it was at this time last year and were at its highest level in two years.” 

The lender says it’s reached an “agreement in principle” to end a consumer class action complaint over its wide-ranging January hack.

Crisis-era issues highlight why certain measures like equity and insurance innovations may be good for servicers to have on hand, a new report suggests.

The parent of United Wholesale Mortgage came in two cents lower on operating earnings, which does not take into account a drop in mortgage servicing rights valuation.