“Q: What does a dyslexic pirate say? A: RRRRRRA!” Humor aside, many in our industry have faced adversity, dyslexia and more, and I received this note: “Rob, I really enjoyed Robbie’s interview with Glenn Stearns Monday. Is it on the web somewhere?” Yes, right here. It is good to listen to for keeping adversity in perspective. The Consumer Finance Protection Bureau tries to lessen any adversity for borrowers, and I also received this note. “Rob, do you think that borrowers are educated in terms of looking at rates AND fees, or just rates?” I’d say just rates, but I believe that the CFPB is keenly interested in making sure that consumers are treated fairly and that lenders highlight both when doing business with potential clients. Speaking of the CFPB, there are always rumors in our biz. Do you remember when TRID was rolled out in 2015, and then the fun & enjoyment we had when TRID 2.0 was rolled out in 2017 and 2018? Well, it is rumored that the CFPB may be making another run at tweaking the model, given input from the industry. Will it be called TRID 3.0? Stay tuned… (Today’s podcast is found here and this week’s is sponsored by Visio Lending. Visio has a top-notch broker program and is the nation’s premier lender for buy and hold investors with over 2.5 billion closed loans for single-family rental properties, including vacation rentals. Hear an interview with Richie May’s Pat Nester on the best ways to run internal audits and improve organizationally as a result.)

The equity infusion into a multimillion-dollar vehicle for co-investment in mortgage servicing rights suggests there may be continuity in a trend as rates shift.

Changes to the Manufactured Home Construction and Safety Standards include allowing the building of two-to-four family units on a permanent basis.

Sen. Tim Scott’s housing bill calls for Congress to play more of a role in reviewing public intervention in housing while reforming or expanding certain programs.

Confidence among U.S. home builders rose in September for the first time in six months, just before the Federal Reserve is expected to cut interest rates from the current two-decade high.

The defendant is accused of defaulting on several properties, bought alongside partner companies with names like Satan or Lucifer Management Corps.

Mortgage rates have fallen nearly 2% from last year’s peak.  Much of that decrease can be viewed as the normal phenomenon of longer term rates getting in position for changes in short term rates.  The point we’re about to make is that mortgage rates have already adjusted for what the Fed is likely to do–not just at this meeting, but many of the upcoming meetings as well. The Fed Funds Rate is an “overnight” rate.  It is the rate on a loan of less than 24 hours.  A 30yr fixed mortgage rate is a loan for anywhere from 3-10 years depending on a number of variables.  Why not 30 years?  Simply put, most people sell or refinance well before the 30 year mark.  Investors care about the average life span and that’s where the 3-10 year time frame comes in. For the sake of easy comparison, let’s say a mortgage is most analogous to a 5 year loan.  That means it would act more like a 5yr Treasury yield (Treasuries are the vanilla, risk-free benchmark for all other rates in the U.S.). The Fed Funds Rate is essentially a 1 day Treasury yield. From there, investors assign value to loans/bonds based on their going rate and the market’s preference for holding certain durations of bonds.  Longer term bonds tend to reflect the current short term bonds + the outlook for how those short term bonds will change over time.  In other words, if you could know what the Fed Funds Rate would do over the course of the next 2 years, you could know a lot about how a 2 year Treasury yield should look today.

What Matters in Wednesday’s Fed Announcement?

The ongoing disagreement in the market regarding the size of Wednesday’s Fed rate cut makes it a very interesting Fed meeting.  That said, the size of the cut at this meeting probably has less to do with the market reaction than the dot plot landscape (i.e. the changes in each Fed member’s rate outlook as communicated in the Summary of Economic Projections).  Powell’s 2:30pm press conference will also add clarity.  As always “volatility” does not have a directional connotation.   Things could go either way, and may do so several times before finally picking a side. 

Econ Data / Events

Retail Sales 

0.1 vs -0.2 f’cast, 1.0 prev

Industrial Production

0.8 vs 0.2 f’cast, -0.9 prev

NAHB Builder Confidence

41 vs 40 f’cast, 39 prev

Market Movement Recap

11:06 AM Generally weaker after Retail Sales and Industrial Production.  MBS down an eighth and 10yr up 1.9bps at 3.638.

01:45 PM sideways at weaker levels.  MBS still down an eighth and 10yr up 2.7bps at 3.646

03:15 PM Bonds not looking like they want to sell anymore today. MBS down 3 ticks (.09) and 10yr up 2bps at 3.639

This morning’s Retail Sales headline was stronger than expected, but the sub-components (analogous to something like core CPI as opposed to headline CPI) painted a flatter picture.  As such, bonds didn’t have much selling to do.  The resulting levels would make for the 2nd lowest closing yields of the year if they can be maintained or improved upon over the next few hours.  

That’s a very strong position from which to approach tomorrow’s Fed announcement.  In fact, even if bonds sold off 10bps, yields would still be very low in the bigger picture.

Does it give you a sense of permanency if you think about how you’re looking at the same moon as pirates did 300-400 years ago? There’s a lunar eclipse across North American tonight, and Talk Like a Pirate Day is Thursday, both in the same week! But, of course, little is permanent. The world morns the death of Tito Jackson, made famous by Eddie Murphy’s standup comedy and this video. (Let’s see folks do that number on the dance floor at the next mortgage conference!) Middle management and loan officer pay isn’t set in stone either, and is always changing. If you want to see who’s making what, the current STRATMOR blog is titled, “Lenders and Vendors Must Pay to Play.” Interest rates aren’t permanent either. Though the headlines may be telling potential borrowers something else, the Federal Reserve’s expected rate cuts this week probably won’t provide much relief to homebuyers hoping for much lower mortgage rates. Most in our biz believe those rates have already priced in what the Fed is going to do, and don’t see a major impact to the mortgage market or credit-card financing or anything else by the Fed starting to drop rates this week. (Today’s podcast is found here and this week’s is sponsored by Visio Lending. Visio has a top-notch broker program and is the nation’s premier lender for buy and hold investors with over 2.5 billion closed loans for single-family rental properties, including vacation rentals. Hear an interview with real estate agent Kamyar Rezaie on what he is seeing from the NAR settlement as well as housing demand in his local Los Angeles market.)