There’s a strong case to be made for the fact that interest rates had a sunny predisposition this week.  In practical terms, that simply meant giving more credence to rate-friendly news and trying harder to overlook unfriendly news. But the predisposition was put to the test in a major way with the week’s most significant economic report today.  Nonfarm Payrolls (NFP) is the headline component of the Labor Department’s Employment Situation report.  There are many reports that pertain to the jobs market, but this one is infinitely more important than the rest and this time around, NFP came in much higher than expected. While the chart of nonfarm payrolls looks range-bound, and while the job count has been much higher in the past few years, Friday’s result of 272k represented an uncommonly large “beat” versus the median forecast of 185k, and a big jump from the previous reading of 165k. A move like this makes it seem like the labor market is too resilient to offer much help to the inflation problem (more jobs, more money, more spending, etc.).  Finally, the bond market’s sunny outlook saw a cloud too big to ignore. With that, mortgage rates had their first (and only) motivation of the week to move higher.  But the chart above also illustrates the silver lining.  Specifically, even though rates jumped on Friday, they’re not even halfway back to last week’s highs, let alone the higher highs seen at the end of April.  Part of the justification for such resilience is that the bond market will defer to inflation data (and the Fed’s interpretation of it) above all else in deciding how worried to be about impediments to lower rates.

Huh? Michigan passed California in legal weed sales? The folks here in San Diego don’t seem to mind, and many on the street are doing their part to keep up as they have for a long time. The only thing constant through time is change… And time flies. Chuck Norris is 84 years old. Jerry Seinfeld is 70. Vanna White is 67. “Captain Jack Sparrow” is 60. LOs and lenders know that business is cyclical and are working on positioning themselves for the next refi wave. Some top LOs and lenders are now doing 20-30 percent of what they were doing in the pandemic years of 2020 and 2021. The numbers over the months and years bear that out: Curinos calculates that May 2024 funded mortgage volume decreased 5 percent YoY and increased 9 percent MoM. In the retail channel, funded volume decreased 10 percent YoY and increased 9 percent MoM. (Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures.) Today’s podcast is found here, and this week’s are sponsored by Visio Lending. Visio 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 reporter Steven Rappoport on the current home-equity market and how technology in the space is evolving to help originators win business. Software, Products, and Services for Lenders and Brokers If you’re tired of long contracts, failing implementations, or having to change your process to fit your Loan Origination System, maybe it’s time to see what happy Byte clients have known for years in this video. You don’t have to keep suffering with a slow, expensive LOS platform or sacrifice functionality to lower your costs. Designed to be both powerful and flexible, the Byte LOS platform gives you total control over your loan process and the freedom to do business the way YOU want. If you’re a savvy, independent-thinking lender with an uncompromising ideal of how you want to run your operation, request a demo or visit bytesoftware.com to learn more.

Acting Comptroller of the Currency Michael Hsu Thursday said AI providers and end-users — including banks — should share responsibility for errors that derive from artificial intelligence models.

In the first quarter of the fiscal year, many mortgage-related companies posted profits after a year-end that didn’t exceed expectations. Here’s how major publicly traded players in the industry performed in the first quarter.

The lender and servicer, coming off multiple consecutive quarters of net losses, has to pay significantly higher interest rates for an additional two year term for this debt.

Still, the expected year-over-year pace of home price increases in 2024 is faster than what the first quarter Fannie Mae Home Price Expectations survey has predicted.

The 30-year fixed-rate mortgage average dropped back below the 7% level as investors reacted positively to news the economy is slowing, Freddie Mac said.

Bonds Continue Taking Their Seats Ahead of The Big Show

Although bonds continued to improve yesterday, the pace of gains has progressively slowed throughout the week.  Our base case was for that momentum to shift sideways or pull back a bit today and that’s exactly what we’ve seen.  It was the base case because it would be a logical move for a market that is leaning in a bullish direction as it waits for the data with the power to endorse or reject the bullish lead-off.  5 straight days of gains (plus a counterintuitive rally following ISM Services) was plenty.  Today’s relatively flat performance is actually just another indication of latent optimism for friendlier data in the future.  As for the “big show,” it remains to be seen how much of the spotlight goes to Friday’s jobs report with next week’s CPI continuing to be at the top of the marquee. 

Econ Data / Events

Jobless Claims

229k vs 220k f’cast, 221k prev

Challenger Layoffs

63.8k vs 63.8k f’cast

Market Movement Recap

09:49 AM Moderately weaker overnight and recovering slightly in 9am hour.  10yr up 1.4bps at 4.29 and MBS down 1 tick (.03).

12:39 PM Sideways near opening levels.  MBS down 2 ticks (.06) and 10yr up 2bps at 4.295

02:20 PM Treasuries near best levels, but still up 0.8bps at 4.284.  MBS down 1 tick (.03).

“My granddad was responsible for 25 downed German planes in WW II. To this day, he is still known as the worst mechanic the Luftwaffe ever had.” On the anniversary of D-Day, let’s hope the entire world is not involved in a war again, although humans have had a recurring theme of conflict. Scaling things down significantly, but keeping with the “recurring theme” theme… There have been recurring themes in the various conferences and private events, most recently the MBA New Jersey which my son Robbie attended and this one I am attending in San Diego for Bay Equity, that lenders have their eye on. Lowering the cost of doing business, including the closing costs seen by borrowers (and mentioned by the White House and regulators to lower housing costs). Lenders try to use every advantage they have to gain and retain borrowers, and improve operational efficiencies, and how doing that will help originators. Last but not least, the constant decision to retain or release servicing, and the long-term impact of that on business. It is, indeed, a tough environment, entirely different than four years ago when everyone was hiring, hiring, and hiring. (Today’s podcast is found here, and this week’s are sponsored by Visio Lending. Visio 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 PCV Murcor’s Marc Tatarcuk on how Appraisal Management Companies find and assign appraisers, how AI is influencing the appraisal space, and what the appraisal landscape currently looks like.)

The outcome of certain economic reports will determine whether the next big move in interest rates is higher or lower.  Two reports are more important than all others in that regard and we’ll get both of the them by next Wednesday. Tomorrow’s jobs report is the more pressing matter.  It may not be quite as important as next Wednesday’s Consumer Price Index (CPI) these days, but it has plenty of power to make or break the day for rates. Today’s data was far less consequential by comparison and bonds coasted sideways after a very respectable winning streak over the past 5 business days.  Bonds dictate day to day movement for interest rates.  As such, today’s mortgage rates were unsurprisingly right in line with yesterday’s.