After the best day in a month and a half on Wednesday, the bond market is back to its recent habit of selling off and moving toward higher yields.  It looked the losses were set to be more modest at the beginning of the day, but things got worse after Fed’s Williams delivered a bit of a hawkish shift.  Williams was the one who pushed back against last week’s CPI report, saying recent inflation setbacks were not a surprise.  Today’s comments were only subtly different but markets honed in on his call for rate hikes in the event data justified it.  In truth, this is not a departure from the prevailing “data dependent” communication regime, but along with the data driven selling at 8:30am (Philly Fed reaction) it seems to have been worth something to traders so far this morning.

Fed Funds Futures suggested a greater focus on the Williams comments, which is what you’d expect given that Williams’ comments were more focused on near term policy possibilities.

What loan officer hasn’t had a memorable co-signing experience? Some more so than others. Along those lines, if you head to Disneyland or Disneyworld, and find bone chips or ashes on the floor of your favorite ride, it is probably not an accident. Nor is eking out a gain, or at least breaking even, in residential lending an accident. At the Great River Conference in Memphis, much of the information being presented is about how to do things more efficiently. And for good reason, as the MBA’s calculations for IMBs and mortgage subsidiaries of chartered banks last showed that total loan production expenses (commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations) increased to $12,485 per loan in the fourth quarter. On the income side of things, borrowers who obtained adjustable-rate mortgage loans (ARMs, for lack of a better acronym) 3 or 5 or 7 years ago have popped up on LO screens for refinances, and you can bet that the companies who own that servicing are all over those borrowers “like hounds on a meat wagon.” (Found here, this week’s podcasts are sponsored by Optimal Blue. OB’s smart solutions automate critical functions like pricing, hedging, trading, and social media. More originators and investors rely upon Optimal Blue’s integrated solutions, data, and connections to support their unique business strategies, no matter how complex. Hear an interview with Optimal Blue’s Mike Vough on refining margin management to improve loan profitability and reduce risk.)

Ohio-based Liberty Home Mortgage joins several companies who started using a more modernized FICO credit score for nonconforming mortgage originations recently.

The CFPB has dissolved the Office of Supervision, Enforcement and Fair Lending and eliminated the job of associate director in a move that impacts how it designates nonbanks for supervision.

The plan that the Federal Housing Finance Agency floated calls for Freddie Mac to actively invest in some new closed-end seconds as cash-out refinancing subsides.

The push comes amid what one expert highlighted as lax funding efforts for two Department of Housing and Urban Development grant programs.

Conventional lending drove volumes higher, particularly in the purchase market, the Mortgage Bankers Association said.

Too Soon to Say Higher Yields Are Bringing Buyers?

Bonds enjoyed their best day in more than a month and a half on Wednesday, which can’t help but beg the question: why?  Days like today require a process of elimination and some guesswork.  We don’t have a big, obvious market mover in play in terms of economic data or headlines.  Moving down the list of usual suspects, any time bonds have been as consistently weak as they have been recently, we can talk about “dip buying” (as in traders buying the dip in prices) as well as short covering (traders buying bonds to cover previous bets on higher rates).  Additionally, we can consider the stock market in the midst of it’s biggest correction since last October and the possibility that some of that stock selling may be turning into bond buying.  Either way, the important consideration is that this is only one day and not necessarily a sign of anything new as much as it’s a byproduct of things that have already happened.

Econ Data / Events

Housing Starts

1.321m vs 1.48m f’cast, 1.549m prev

Building Permits

1.458m vs 1.514m f’cast, 1.523m prev

Market Movement Recap

09:41 AM 10s are down 4.5bps at 4.623. MBS are up roughly a quarter point.

12:34 PM brief weakness into the 10am hour, but stronger since then.  MBS up almost 3/8ths and 10yr down 6.5bps at 4.604

01:49 PM well received 20yr bond auction followed by the best levels of the day.  MBS up 13 ticks (.41) and 10yr down 8.4bps at 4.585.

Mortgage rates moved lower today after hitting the highest levels since mid November yesterday.  Some lenders were down as much as an eighth of a percent, which is on the bigger side for a day-over-day change for conventional 30yr fixed rates.  As nice as it is to see a big improvement, it’s important to understand the nature of the move.  Even when rates are spiking consistently higher, the carnage is invariably punctuated by brief moments of reprieve.  In fact, it’s very rare for a rate spike to play out with each successive day being higher than the last.   In other words, as of today, it’s not safe to view this improvement as anything other than a token bounce that exists as a normal byproduct of the pain that came before it.  All that having been said, there is also a chance that rates have moved up enough to get into their desired defensive position for the next round of big ticket data in early May.  We’ll be able to better assess that possibility over the next two days.

“We base our business model on lots of things, but not on our ability to predict rates.” Remember when there used to be “a flight to quality” when there was world unrest, and investors put their money into dollar-denominated assets? Long gone. Even if one knew exactly what was going to happen in the United States, how can anyone, including the Federal Reserve, predict much of anything given the global uncertainty, violent or otherwise, and an event’s impact on mortgage rates? (Speaking of the Fed & rates, the current STRATMOR blog is titled, “Relying on the Fed: How Did This Happen?” (Found here, this week’s podcasts are sponsored by Optimal Blue. OB’s smart solutions automate critical functions like pricing, hedging, trading, and social media. More originators and investors rely upon Optimal Blue’s integrated solutions, data, and connections to support their unique business strategies, no matter how complex. Hear an excerpt of an interview with former CFPB Director Kathy Kraninger from last week’s Mortgage Matters show that airs every Wednesday at 11am PT/2pm ET. Register for today’s show with guest Tom Davis of Deephaven.) Lender and Broker Products, Software, and Services Real estate valuations continue to be complex and ever-evolving, especially today with proposed regulatory changes and unpredictable market dynamics. Creating an effective valuation strategy is vital for lenders to manage risk and streamline operations. Watch this complimentary webinar hosted by ICE to learn all about the world of automated valuation models (AVMs)*. You’ll find out when to use an AVM to address challenges in the current valuation landscape; why AVMs are considered a credible, objective option for collateral risk management; and how they can help your business – from lead generation and portfolio management to cost reduction and more. *Check with your compliance or legal department for information on complying with applicable law.