Higher interest rates helped to wipe out three weeks of gains in mortgage application activity. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of that activity, decreased 5.7 percent on a seasonally adjusted basis and 6.3 percent before adjustment during the week ended May 24. The Refinance Index plummeted by 14.0 percent from the previous week’s level but stayed 12.0 percent higher than during the same week one year ago. The refinance share of mortgage activity decreased to 31.3 percent from 34.0 percent. [refiappschart] The seasonally adjusted Purchase Index declined for the third straight week, slipping 1.0 percent on a seasonally adjusted basis and 3.0 percent on an unadjusted basis. Purchase loan applications were down 10.0 percent compared to the same period in 2023.   [purchaseappschart] “Mortgage rates increased for the first time in four weeks, with the 30-year fixed rate up to 7.05 percent and all other loan types also seeing increases. The uptick in rates led to a decline in mortgage applications heading into Memorial Day weekend,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.  “Both purchase and refinance applications fell, pushing overall activity to the lowest level since early March. Borrowers remain sensitive to small increases in rates, impacting the refinance market and keeping purchase applications below last year’s levels. There continues to be limited levels of existing homes for sale and many buyers are struggling to find listings in their price range that meet their needs.”

Over 54% of borrowers with a mortgage say they only got one mortgage offer, a LendingTree survey said.

If approved by the Federal Housing Finance Agency, the program will not lead to large amounts of home equity being extracted, nor is it mission creep, wrote Keefe, Bruyette & Woods analyst Bose George.

Unusual spikes in property taxes and insurance in many areas are causing servicing concerns that mortgage companies may not be used to managing.

Amid numerous late payment improvements, foreclosure sales and prepayments ticked up.

In a speech, the Federal Reserve governor said she would have liked to see the Federal Open Market Committee move more quickly to reduce its holdings. The central bank is poised to begin slowing the pace of balance sheet runoff this week.

Relatively Sharp Losses, but Nothing Special in The Bigger Picture

Bonds began the day modestly stronger, and that was their first mistake.  Starting around 10am, the gains began evaporating following comments from Fed’s Kashkari (who needs to see “many” more months of good inflation before considering a cut) and a big pop in consumer confidence data.  In the next 3 hours, both the 2yr and 5yr Treasury auction would add to the pressure.  MBS were only down a quarter point on the day, which is an unremarkable move for the first day back after a 3 day weekend, but in contrast to the low volatility gains in the first 2 hours of the day, it feels subjectively abrupt.  Mortgage lenders concur, based on the number of reprices (and 2nd reprices).

Econ Data / Events

FHFA Home Prices 

0.1 vs 0.5 f’cast, 1.2 prev

Case Shiller Home Prices

1.6 vs 0.9 prev

Consumer Confidence

102.0 vs 95.9 f’cast, 97.0 prev

Market Movement Recap

09:55 AM Sideways in a narrow range overnight.  10yr unchanged at 4.466.  MBS up 3 ticks (.09).

10:23 AM Slightly weaker after confidence data and Fed comments.  10yr up 2 bps at 4.486.  MBS up 1 tick (0.03), but down 3 ticks (0.09) from intraday highs.

11:37 AM More losses after 2yr auction.  MBS down 2 ticks (.06) and 10yr up 3bps at 4.496

01:06 PM 10yr yields are now 5.6bps higher at 4.522 and MBS are down an eighth on the day

03:01 PM Weakest levels of the day with MBS down 9 ticks (.28) and 10yr yields up 7.4bps at 4.54

It was a mini rollercoaster of a day for mortgage rates with the average lender starting the day at lower levels than Friday only to end at the highest levels since May 3rd.  The weakness was driven by a combination of economic data, comments from Fed officials, and weaker US Treasury auctions. There are several small consolations. First off, last week’s rates were already in line with 2 week highs.  More importantly, the recent range is fairly narrow, meaning it didn’t take much of a jump in the bigger picture in order to see 3-week highs. The average lender is at least an eighth of a percent higher than they were for the equivalent scenario on Friday morning with top tier conventional 30yr fixed quotes in the 7.25% neighborhood

Last week was notable for its absence of any notable developments–an outcome we considered to be the “guilty until proven innocent” baseline and the reason we referred to the past 11 days as an 11 day weekend.  As the new, holiday-shortened week gets underway, bonds have yet to break outside the range boundaries from the 11 day weekend, but at the very least, there is more data on tap.  In addition to Treasury auctions through Thursday, there is also a smattering of economic reports.  We’re already seeing some reaction to this morning’s Consumer Confidence and 2yr Treasury auction, but the headliner in terms of potential volatility is Friday’s PCE inflation data.

“Scientists got together to study the effects of alcohol on a person’s walk, and the result was staggering.” The news impacting human life and property over the weekend was truly staggering, ranging from one (Bill Walton, basketball player) to possibly thousands (buried alive from a landslide in Papua New Guinea, north of Australia). More than 40 were killed in an Israeli strike against Hamas. Tornadoes tore through the middle of the United States, killing more than 20 and destroying thousands of structures. We talk about climate change, and global warming, yet now an airline has begun just to fly pets at $6k a pop. (What’s Bella’s money and carbon footprint now?) Meanwhile, at a micro level but impacting lives, lenders are continuing to try to save money, some by charging for VOEs (often based on regulations and practices at the state-level, but many loans have two or more VOEs run) or at least turning off the automatic running of VOEs and making the process manual. Lenders saving money and staying afloat has been a combination of many factors and will continue to be. (Found here, this week’s podcasts are sponsored by American Financial Resources, the mortgage lender that’s shaking things up by streamlining processes, bringing on the best humans in the business, and putting the customer experience front and center. Today’s features an interview with Prudent AI’s Paul Gigliotti on empowering lenders to pre-approve loans in one click.) Lender and Broker Services, Products, and Software