Mortgage rates surged at a pace seen only one other time since October 2022.  The average lender moved up by 0.28%, which is functionally equivalent to the 0.29% seen after the February 2nd jobs report.  In fact, today was arguably worse because the Feb 2nd example happened a day after rates hit long-term lows.  The implication is that the jump would not have been as big in early Feb if rates weren’t undergoing a correction from those lows. Hair splitting aside, there just aren’t many past examples of rates rising more than a quarter point in a day. Before covid, it had happened one other time in the past decade. Translation: it was a rough day for rates.  But why? We’ve been rather incessantly focused on the risks associated with today’s Consumer Price Index (CPI) in the days and weeks leading up to its release.  It ended up exceeding the hype by showing that inflation refuses to head to the lower levels required for a lower interest rate environment.  Today is really that simple. Rates are highly dependent on inflation data at the moment.  We’ll get another inflation report tomorrow, but it never operates on the same scale of relevance to rates as CPI.  That’s not to say a friendly result wouldn’t help, but the data stands an equal chance to be unfriendly, thus compounding today’s problems as opposed to taking the edge off. We’ll talk more about longer-term, bigger-picture implications on Friday.

A Really Bad Day For The Bond Market

To reiterate the point made in today’s morning commentary, there was a mismatch between the size of the beat in the core inflation data (0.4 vs 0.3) and the size of the move in the bond market.  This wasn’t a glaringly huge problem considering the February’s CPI beat resulted in about 15bps of weakness in the 10yr while today was “only” 18bps, but it just emphasizes the extent to which the market has increased its focus on this particular report.  The afternoon’s 10yr Treasury auction added meaningfully to the weakness, and the Fed Minutes passed without a trace.  Geopolitical headlines (vague warning regarding potential for Iran attacking Israel) helped modestly, and were the only other source of volatility after the auction.

Econ Data / Events

Core mm CPI  

0.4 vs 0.3 f’cast, 0.4 prev

Core yy CPI 

3.8 vs 3.7 f’cast, 3.8 prev

Market Movement Recap

08:29 AM A hair stronger ahead of CPI with MBS up 3 ticks (.09) and 10yr yields down 2bps at 4.344

08:42 AM Sharply weaker after CPI.  MBS down 5/8ths of a point.  10yr up 13bps at 4.498.

10:42 AM Flat at weakest levels over the past 2 hours.  MBS down nearly 3/4ths and 10yr up 12.7bps at 4.492.

12:36 PM drifting to weakest levels with MBS down 26 ticks (.81) overall and 10yr up 15bps at 4.515

01:46 PM Additional weakness after 10yr auction with 10s briefly up to 4.568.  Still up 18.6bps at 4.55%.  MBS down a full point.

04:09 PM coasting out near weakest levels.  5.5 coupons down just over a point.  10yr yield up 18.1bps at 4.546.

Remember when lenders were fretting about Amazon rolling out a major home loan program? The new acronym that the mortgage industry was about to start using was “WACD” (What Amazon Can’t Do). We reminded ourselves that Amazon couldn’t do is to deliver high value and personalized service and build relationships that last a lifetime. Play to your strengths! One strength is keeping up with what is going on, especially in the regulatory world. Today’s L1 show at 2PM ET features Kathy Kraninger, former director of the Consumer Financial Protection Bureau from 2018 to 2021, now CEO of the Florida Bankers Association, with a “behind the scenes” look at being the CFPB director and setting clear “rules of the road.” Next week Rich Swerbinsky returns to the airwaves on Thursday the 18th at 3PM ET, interviewing the CFPB’s Mark McArdle on what the big misconceptions about the CFPB are, and where its focus is currently. (Found here after 8:30AM ET, this week’s podcasts are sponsored by PHH Mortgage. From subservicing to correspondent lending, MSR/co-issue transactions, portfolio retention, reverse mortgages, and commercial servicing, PHH has solutions for the entire mortgage lifecycle. Hear an excerpt of an interview with Bank of Oklahoma’s Chris Maloney from last week’s Mortgage Matters show presented by Lenders One on all things capital markets, from supply and prepayment speeds to the evolution of the Federal Reserve’s balance sheet over time.) Lender and Broker Products, Software, and Services

When it comes to big ticket economic events, the average anticipatory headline tends to be a bit more dramatic than the actual outcome.  It’s our way of preparing the audience for what’s possible even though reality only occasionally explores the depths of those possibilities.  Then there are days like today where a meager 0.1% beat in core CPI has resulted in a level of selling pressure we might have expected to follow a much more alarming data result. 

10yr yields are already up to 4.50% and the first Fed rate cut is now being priced in for September by Fed Funds Futures.

The interest rate for conforming 30-year fixed-rate mortgages (FRM) again topped 7 percent last week, but mortgage application activity still squeezed out a tiny gain.  The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of application volume, increased 0.1 percent on a seasonally adjusted basis. On an unadjusted basis, the Index increased 0.2 percent compared with the previous week. But that tiny gain was due solely to a 10.0 percent increase in refinancing (plus 4.0 percent year-over-year) while the purchase mortgage level fell 5.0 percent on a seasonally adjusted basis. Refinancing accounted for 33.3 percent of applications during the week compared to 30.3 percent a week earlier. [refiappschart] The non-seasonally adjusted Purchase Index was 4.0 percent lower last week and down 23 percent from its level the same week one year ago. [purchaseappschart] “Mortgage rates moved higher last week as several Federal Reserve officials reiterated a patient posture on rate cuts. Inflation remains stubbornly above the Fed’s target, and the broader economy continues to show resiliency. Unexpectedly strong employment data released last week further added to the upward pressure on rates,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The 30-year fixed rate increased to 7.01 percent, the highest in over a month. Purchase applications were down almost five percent to the lowest level since the end of February, but refinance applications were up 10 percent, driven particularly by VA refinance applications.”

The newly launched Rocket Logic platform can pull and analyze documents instantly, helping to shrink closing times by about 25%, the lender claims.

Mortgage lenders offered more cash-out refinance programs at a time when consumers might be coming to terms with the rate environment.

In a message to broker partners, UWM defended its business practices and claimed one of the contributors to the piece worked at a Rocket Mortgage affiliated brokerage for the last five years.

The servicer charges borrowers $25 to obtain a payoff quote statement.

Tracy Stephan’s appointment to the new role is in line with broader federal directives follows other changes in staffing in the Office of Financial Technology.