This morning I head to Chicago, IL, a state with 972 licensed mortgage banking companies. Illinois has had its share of severe storm damage (heck, in Sarasota we just had upwards of 10 inches of rain in about 12 hours), and may be joining the ranks of places in the U.S. where the cost of insurance passes the cost of property tax. Coach a borrower through that! The cost and availability of homeowner’s insurance is a big topic in Florida, as is the PACE program. Florida is one of three states (with California and Missouri) that offer this loan program for clean energy. The Florida legislature put some consumer protection provisions into the program, but for various reasons mortgage organizations like the MBAF were sorry to see the bill pass and are working on a veto. For instance, these loans are put into first priority ahead of the homeowner’s mortgage (no one wants to read “predatory” when it comes to any program), and what lender or servicer needs that? (Today’s podcast is found here, and this week’s are sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, cybersecurity, technology, and other services to the mortgage industry. Hear an interview with Richey May’s Michael Nougier on best practices for companies to put in place regarding preventing and reporting cybersecurity breaches.) Software, Products, and Services for Lenders and Brokers Interest rates are now double where they were in 2022. Tipping over 8 percent at the end of 2023 and hanging in the 7 percent range nearly all of this year, the current interest rate environment is not helping delinquent homeowners. Gone are the days when modifying your mortgage payment was supported by dropping the interest rate. There is a solution. FHA’s Payment Supplement program doesn’t change the terms of the first mortgage. Read Clarifire’s recent blog, “Servicing Answers to High Interest Rate Pressures,” to find out the details of this solution, along with how old pitfalls could impact your implementation of this program and future loss mitigation options. Don’t let old automation cripple your success. Make sure you’re in a position to help your distressed borrowers navigate economic volatility and avoid default with CLARIFIRE ®, a modern, intelligent innovation that’s truly BRIGHTER AUTOMATION®.

In a nutshell, this morning’s economic data rapidly reversed the weakness seen after yesterday’s Fed announcement, thus restoring the lowest yields achieved after yesterday’s CPI data.  Today’s core monthly PPI is probably the bigger consideration, coming in at 0.0 vs 0.3–a big beat to be sure.  Jobless Claims in the 240k+ zone also help, but there are some doubts as to the seasonal adjustment factors due to the way unadjusted data has bled through to adjusted data over the past two years. 
Specifically, the big spike/drop in July/Aug is something that shows up in NON-Adjusted numbers, but is also showing up in adjusted numbers as seen below.  This suggests the adjustments need adjusting and could be overstating the spike seen in claims today (emphasis on “COULD”).

Perhaps those doubts play a role in the bond market having second thoughts about the pace of this morning’s rally.  Either way, yields look to have hit a solid floor when attempting to improve on yesterday’s best levels.

But despite increasing anxiety over rising costs, an overall majority of consumers also express optimism about their own improving financial prospects in the upcoming year, according to Transunion.

The new Optimal Blue CEO worked for the past year-plus at Medallia, and will bring that broader experience to the mortgage industry as it adopts generative AI.

The Federal Reserve held firm on its current interest rate levels after its latest meeting, but inflation numbers are leading to talk of potential action in third and fourth quarters.

The Federal Reserve chair said a rate cut would not solve the underlying issues driving up shelter costs, even as housing becomes a disproportionate driver of inflation.

Lenders including The Loan Store, Movement Mortgage, Bayview Asset Management and Saluda Grade are already using Figure Connect, the company said.

Massive CPI Rally Cut in Half After Fed Announcement

As discussed in the AM commentary, bonds rallied sharply after this morning’s CPI data (unrounded core monthly inflation at .163% versus a 0.3% forecast).  Those gains held up uneventfully until the Fed festivities began.  The most significant item on the Fed agenda was the dot plot at 2pm which showed the median outlook for 2024 rate cuts falling to “one” from “three.”  Fed Chair Powell offered no dovish reassurances in the press conference, nor was he even very enthusiastic about this one month of data.  All of that was to be expected, but markets nonetheless acted like they expected at least a little token of rate rally affection.  By 4pm, about half of the CPI gains had been erased, but that’s still a solid day in the bigger picture.

Econ Data / Events

month over month core CPI

0.2 vs 0.3 f’cast, 0.3 prev

Annual core CPI

3.4 vs 3.5 f’cast, 3.6 prev

Market Movement Recap

09:29 AM sharply stronger after CPI data and holding gains so far.  10yr down 15bps at 4.271.  MBS up over 3/8ths in 6.0 coupons and nearly 5/8ths in 5.5 coupons

12:37 PM Sideways to slightly stronger at best levels.  10yr down 14.6bps at 4.257.  MBS up half a point.

02:31 PM Two-way trading after Fed’s dot plot (announcement was unchanged, basically).  Initial weakness, but bouncing back as the press conference gets underway.  10yr down 13.3bps at 4.268.  MBS up 14 ticks (.44).

03:26 PM MBS are now up “only” 10 ticks (.31) in 6.0 coupons and 14 ticks (.44) in 5.5. coupons. 10yr yields are down 8.9bps at 4.311

04:02 PM Another few ticks of weakness.  MBS still up a quarter point, but about halfway back to pre-CPI levels.  10yr still down 7bps at 4.33.

It was an incredibly high consequence day for the bond market and, thus, mortgage rates due to the confluence of two extremely important events. The first event was the monthly release of the Consumer Price Index (CPI), which is one of the two economic reports with the far more power to influence interest rates than any other.  The other report is the big jobs report that came out last Friday.  As much as the jobs data hurt, today’s CPI helped.  It brought the average top tier 30yr fixed scenario down under 7.0% by a hair–one of the biggest single day drops in months. The good times lasted, but they got less good after the afternoon’s Fed announcement.  To be precise, it wasn’t the announcement itself, but rather the Fed’s updated rate projections that did most of the damage.  After the last round of projections (in March) showed 3 rate cuts in 2024, today’s only showed 1.  This wasn’t too terribly different from what the market expected, but it was slightly more conservative than hoped.   At the very least, traders didn’t find anything in the projections nor in Fed Chair Powell’s press conference to suggest that the good times should keep on rolling after already having been so good in the morning hours.  Bonds ultimately retraced about half of their gains and several mortgage lenders had announced late-day rate increases by 4pm Eastern Time.   Lenders who didn’t bump rates a bit higher this afternoon would need to account for the bond market movement in tomorrow’s rate offerings, assuming the bond market doesn’t move too much overnight or early tomorrow morning.

The Federal Deposit Insurance Corp. sued 15 lenders on loans brokered through Washington Mutual that were included in securitizations before the bank’s 2008 failure.