How ‘bout some good news? Last week’s apps skyrocketed, and… Builders are sitting on a pile of unsold homes and are slashing prices and offering mortgage rate deals! It sure is hard to have a “steady as she goes” environment in real estate and lending. Word continues to simmer about IMBs (independent mortgage banks) and the Community Reinvestment Act. Even though the CRA is a Congressionally approved law at the federal level, states like Illinois and New York have put rules in place, despite IMBs not accepting deposits. Some states can be more restrictive than the Federal government, but they don’t want to do anything that is unconstitutional. In addition, regulators, it can be argued, use archaic measures to analyze business practices. What difference does it make where the branch is, given that so many LOs work from home? Questions have come up about the CFPB and Justice Department enforcing Fair Lending. How will Fair Lending be enforced, if at all? Ask any LO: Lenders are taking every loan they can get, so claims of redlining are highly suspect. Every lender out there is trying in every way to qualify any borrower. Certainly, inventory shortages in some areas shouldn’t be held against lenders. (Today’s podcast can be found here and this week’s is sponsored by Figure. Figure is shaking up the lending world with its five-day HELOC, offering borrower approvals in as little as five minutes and funding in five days. Lenders, give your borrowers an experience they will rave about. On today’s hear a discussion between Robbie and Rob Chrisman making sense of all the volatility we have seen as a result of President Trump’s tariffs.)

For anyone remotely tuned into financial news, it will come as no surprise that this has been a crazy week and today has been a crazy day.  This is just as true for stocks as it is for the bond market that dictates interest rate movement. Overnight, stocks and bonds both deteriorated substantially.  When it comes to bonds, that means prices moved lower and yields (another word for “rates”) move higher. In other words, bond yields tend to move in the same direction as mortgage rates, and both were up BIG this morning.  In fact, the average top tier 30yr fixed rate was all the way up to 7.0% for the first time since February 19th. In not so many words, the implementation of higher tariffs has been behind the weakness in markets. With that in mind, it’s no surprise to see a massive reversal in markets this afternoon after the Trump administration announced a 90 day pause on new tariffs for all countries but China. This was one of the most jarring trading days for mortgage specific bonds (in terms of the juxtaposition of big losses and big gains) in decades.  Only a small handful of similar examples exist going back to the financial crisis. In fact, mortgage-backed bonds made it all the way back to “unchanged” levels by the end of the day after being relatively terrible shape at 1pm ET.  In a perfect world, that would mean mortgage rates could be at the same levels as yesterday afternoon, but sadly, that’s not the way it works.

Bonds Have a Lot On Their Minds (And The Mega Reversal After The Tariff Pause)

There are actually too many relevant considerations for bond market movement to attempt to put them all in one headline. Everyone can agree that today’s main event was the announcement of a 90 day pause on tariffs and the ensuing mega reversal across multiple corners of the financial market. The stock reversal was the most insane, but MBS put up some numbers as well, with nearly a 1 point round trip from weaker to back to unchanged. Much like yesterday, the best way to bring yourself up to speed on the current esoteric underpinnings is to take 10 minutes with today’s recap video. 

Market Movement Recap

10:01 AM Decent push back against overnight weakness since about 9:15am.  MBS still down 3/8ths, but up almost half a point from lows.  10yr still up 6.8bps at 4.368, but down from overnight highs over 4.50%.

12:25 PM re-weakening to worst levels of the day.  MBS down just over 3/4ths of a point and 10yr up 12.7bps to 4.428

01:04 PM Improving after stronger Treasury auction.  MBS not so much, but 10yr down several bps to 4.391 (still up 9+ on the day).

03:04 PM MBS at best levels, now down only 6 ticks (.19) and 10yr up 9bps at 4.39

MBS are down the better part of a point and 10yr yields are up 14+ bps at 4.44%.  Another huge loss that leaves market watchers grasping for answers.

Most of you are aware that MBS Live publishes a daily recap video.  MBS Live is aware that many of you prefer not to sit through more than 60 seconds of video content at a time.  While the text of the recap typically tells you enough to get by, there are times when things won’t make any sense without the fireside chat.  In this case, they still might not make sense, but it’s your best shot.  Here’s the link.
For those who really can’t be bothered (and as a guy who watches most videos on 2x speed, I feel you), here are some bullet points:

Tariff revenue will actually be lower than it was before due to a rapid slowdown in trade and what increasingly looks like a surefire path to recession
Lower revenue and recessions both imply higher Treasury issuance and thus, higher yields
A rapid slowdown in trade lowers the demand for US Treasuries among foreign central banks
Tariff brinksmanship raises the risk of higher inflation readings in the short term
Stocks and bonds are no longer locked in such a tight correlation pattern
The short end of the yield curve is benefiting to some extent from Fed rate cut expectations, thus putting even more bond selling pressure on the long end of the curve

Vacating the judgment would set a dangerous precedent for new administrations to roll back unfavorable rulings, the National Fair Housing Alliance argued.

MBA’s CEO Bob Broeksmit said the trade group is actively getting in front of Trump-appointed officials to help guide housing policy.

Senate Banking Committee Chairman Tim Scott said Jonathan McKernan’s final confirmation vote to lead the Consumer Financial Protection Bureau is “imminent.”

Deregulation at the federal and state levels could open the door to a potential boom in housing supply, HUD Secretary Scott Turner said Tuesday.

Wholesale firm Ardri’s acquisition of The Lending Shop comes after the company installed a mortgage industry veteran as its new president earlier this year.

Today I travel to the Dallas area for a Logan Finance event, and this comment from a friend last night is echoing in my ears: “Becoming an adult is the dumbest thing I’ve ever done.” Yes, we have to worry about things like interest rates, tariffs, and politics. Fortunately, interest rates have moved down, but this is primarily due to the increased odds of an economic slowdown. The proponents of a high tax on imported goods say that the U.S. is moving from “free” trade to “fair” trade. Congress has stepped aside, yielding to President Trump, and beginning Thursday night they go on vacation for the rest of the month. Elliot F. Eisenberg, Ph.D., spells it out: “Imports are 11 percent of GDP, and GDP is $30 trillion, making imports $3.3 trillion. As it now stands, the average tariff on imports is 24 percent resulting in $792 billion in tariffs. But there will, of course, be behavioral changes reducing imports. Import price elasticities suggest a reduction of 1/3, getting us to $528 billion, a tax hike of 1.76 percent of GDP, or $1,550/person! A recession is increasingly likely.” On today’s episode of Capital Markets Wrap presented by Polly, they examine the latest tariff updates & impacts, as well as Rocket’s acquisition of Mr. Cooper on base TBA pricing and prepay speeds. (Today’s podcast can be found here and this week’s is sponsored by Figure. Figure is shaking up the lending world with its five-day HELOC, offering borrower approvals in as little as five minutes and funding in five days. Lenders, give your borrowers an experience they will rave about. On today’s hear an interview with Truework’s Ryan Sandler on how AI and advanced machine learning technology can facilitate expedited borrower approvals and streamline processes in the current housing market and economic climate.)