President Joe Biden’s administration and Senate Democrats are ramping up pressure on the Federal Home Loan Bank system to pump more money into solving the nation’s housing crisis.

High borrowing costs led to fewer mortgage originations in the second quarter, according to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit released Tuesday.

MBS Outperform as Bonds Aggressively Unwind Weekend Rally

There’s been no shortage of directional movement over the past 5 business days with last Wednesday’s Fed announcement serving as the starting point for huge rally with a big cast of characters.  Whereas the first 4 days of this wild ride had distinct motivations, today’s selling in the bond market was more to do with the absence of any additional motivation.  Bottom line, as of yesterday afternoon, there was some uncertainty as to whether the Yen carry trade had fully unwound and today’s trading suggests it is at least far enough unwound to no longer serve as an impetus for massive stock selling and bond buying.  Treasuries took the biggest hit, partly because they outperformed yesterday and partly due to the ongoing auction cycle.

Econ Data / Events

ISM Services

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ISM Biz Acitivity

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ISM Prices

57.0 vs 55.8 f’cast, 56.3 prev

Market Movement Recap

08:44 AM Weaker overnight and pushing back toward positive territory.  MBS up 1 tick (.03).  10yr up 2.8bps at 3.823.

12:26 PM Weaker into PM hours.  MBS down an eighth and 10yr up 8.3bps at 3.878

02:51 PM Weakest levels at 2pm and slight bounce after that.  MBS down 5 ticks (.16).  10yr up 9.3bps at 3.887

In and of itself, today was quite awful for mortgage rates with conventional 30yr fixed rates moving up faster than on almost any other day in the past few years.  As unpleasant as that sounds, if you forget about the past 2 days, the average lender is still offering the lowest rate in well over a year. This is how things often play out when the bond market forces a quick move to extreme rate levels.  For example, several of the biggest drops in daily mortgage rates have followed quick moves to long-term highs. There are other complicating factors driving the swings over the past 3 days especially.  We alluded to these yesterday, but they deserve a bit more attention in light of the ongoing volatility.  Mortgage rates moved much more than the Treasury yields to which they’re often compared.  That is not logical at first glance because the mortgage-backed securities (MBS) that determine mortgage rates didn’t get hurt nearly as much as Treasuries today.  In other words, mortgage rates shouldn’t have moved as quickly as they did based on bond market movement. The issue has to do with the structure of the MBS market.  It would take a tome to explain all the nuts and bolts, but in a nutshell, it means that lenders often end up having more advantageous costs when they offer rates that end in .125% and .625%.   (NOTE: The rest of this is rather technical despite an attempt to keep it as basic as possible.  Don’t sweat it if you don’t understand it.)

Global markets are still recovering from yesterday’s wild ride. In general, that has involved gains for stocks and losses in bonds.  It’s also probably worth keeping a periodic eye on dollar/yen (aka USD/JPY) these days considering the Yen carry trade was credited for much of the recent stock losses.  Some say there is more unwinding and deleveraging left to come (leverage is a key ingredient of the carry trade and one that exacerbates volatility amid carry trade corrections).  Others are saying “move along, nothing to see here.”  Based on the fact that USD/JPY has fallen (stronger yen) while stocks have improved, markets may indeed be moving along.

The next chart is a longer term look at the relationship between stocks, bonds, and USD/JPY.  The intent is to show the magnitude of the move in the latter.  Another message in this chart is one we’ve already been following, i.e. that bonds have been trading the shift in economic data over the last 3 months.

“Borrow money from pessimists: They don’t expect it back.” We are re-entering conference season, and mortgage conference attendance is all over the map. Some groups have seen a drop. At the other end of the spectrum, the California MBA’s Western Secondary in a couple weeks is well ahead of last year’s numbers. Topics on agendas? Here in Southern California, at the CAMP event, there are two sessions on homeowner’s insurance. In fact, today California’s Insurance Commissioner is on the stage… and not suspended above a dunk tank. Many companies have “trimmed their sails” and are moving forward, and today at 11am PT/2pm ET, join STRATMOR Group Senior Partner Garth Graham, Customer Experience Director Mike Seminari, and Senior Advisor Sue Woodard for the first episode of Advisory Angle, presented by the Chrisman Commentary. From impending restrictions on trigger leads, capacity issues, non-traditional compensation plans, and the customer experience, the trio will talk about how the refi world has already changed and why it won’t provide the lift all lenders are looking for in this market. There are things lenders can do now to keep their businesses afloat, which Garth, Mike, and Sue will explore in this month’s episode. (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 H&M Mortgage’s John Hudson on what makes a 26-year-veteran mortgage executive leave the comfy confines of a salary and decide to open a broker shop and originate.)

The country’s renter population is dramatically outpacing the growth in homeowner households due to a multifamily construction boom that’s limited price gains.

The Swiss bank claims that Countrywide is obligated to indemnify it for legal expenses stemming from risky mortgages bundled pre-2008.

Mortgage bonds tend to lag Treasuries when it’s unclear where rates are going, because changes in yields can have a big impact on how many borrowers refinance their home loans.

The litigation involved more than 100 loans, many insured by the Federal Housing Administration, with volume totaling approximately $55 million.