Attendees of next week’s MBA Secondary conference can look forward to… A giant hot dog in Times Square that spits out confetti at high noon. (Keep your risqué comments to yourself please.) They can obviously look forward to much more at the actual conference, including information about the economy, regulators, and seeing what the Agencies and aggregators are up to in terms of products. Every client is important, and originators want a full product suite from their companies and vendors. (The current STRATMOR blog is titled, “Down Payment Assistance Programs Helpful But Not a Universal Remedy.”) For good news, homeowner equity has hit almost $17 trillion, as values in March hit a historic all-time high according to a report from Intercontinental Exchange. But looking at units this year (a better measure than the estimated $1.5-2 trillion) the MBA expects the lowest production in decades. If recent conferences are any indication, look forward to attendance being down, but spirited and with a good “vibe.” (Found here, this week’s podcasts are sponsored by LoanCare. The mortgage subservicer is known for delivering superior customer experience through personalization and convenience. Its award-winning portfolio management tool, LoanCare Analytics, supports MSR investors with a focus on customer engagement, liquidity, and credit risk. Hear an interview between JVM Lending’s Jay Voorhees and Robbie on thoughts for the future of mortgage origination.) Lender and Broker Software, Products, and Services

If it feels like we’ve been harping on the prospects for rate volatility in response to today’s inflation data for several weeks (and we have), today is why.  The Consumer Price Index (CPI) is the biggest reliable source of momentum for interest rates when it comes to scheduled data–big enough that the results can come in right in line with forecasts and still have a big impact.   Indeed, today’s results were right in line with forecasts.  In month over month terms, core inflation was 0.3% and annual inflation was 3.6%.  The Fed wants those numbers at 0.1-0.2 in monthly terms and 2.0% annually in order to be more confident about rate cuts.  The annual number wouldn’t need to hit 2.0% as long as monthly numbers suggested we were well on our way. And again, today’s monthly number only suggested 3.6% (0.3 x 12).  Despite being almost twice as brisk as desired, the 0.3% rate of monthly core inflation was apparently a relief for bond traders who quickly began pushing rates lower.  Mortgage rates are based on mortgage-specific bonds that correlate substantially with US Treasuries.   Other economic data helped the cause with Retail Sales coming in unchanged for April versus forecasts calling for a 0.4% increase.  Taken together, the as-expected inflation data and weaker retail sales suggest cooler inflation pressure relative to Q1’s data–something all fans of low rates were hoping to see. Mortgage Lenders were able to drop their average top tier conventional 30yr fixed rate to 6.99% from 7.11% yesterday.

Like The Last CPI Never Even Happened

The much anticipated CPI data was perfectly in line with expectations of 0.3% month over month at the core level.  That’s a far cry from the 0.17% needed to sustain a 2.0% annual inflation target on average, but by avoiding another upside surprise, it was enough for bond traders today.  It also surely didn’t hurt that Retail Sales (which had added insult to injury last month) came in much lower than forecast (0.0 vs 0.4) with last month’s stellar 0.7% reading also being revised down to 0.6.  Bonds rallied sharply at first, and then gradually into the afternoon. As if by magic, 10yr yields hit the 3pm close at the same levels seen before the April 10th CPI data… like it never even happened…

Econ Data / Events

Core Month Over Month CPI

0.3 vs 0.3 f’cast, 0.4 prev

Core Annual CPI

3.6 vs 3.6 f’cast, 3.8 prev

Retail Sales

0.0 vs 0.4 f’cast, 0.6 prev

Market Movement Recap

08:39 AM Stronger after data with 10yr down 6bps at 4.38 and MBS up nearly 3/8ths

10:53 AM Remarkably calm in new, stronger range.  10yr down 6.5bps at 4.374.  MBS up 10 ticks (.31).

01:01 PM Steady gains since 10am.  MBS up 14 ticks (.44) and 10yr down 9.4bps at 4.345.

03:01 PM Still fairly flat, just off the best levels.  MBS up 3/8ths and 10yr yields down 8.8bps at 4.351

Misconceptions and misunderstandings… Capital markets folks at the MBA conference next week should know that The Naked Cowboy in Times Square is not really naked. Soon after his presidency, Jimmy Carter (who’s been on hospice care for 15 months) gave a speech at a Japanese college and told a joke. To his surprise, the Japanese interpreter’s version was much shorter than the actual joke as he said it, and the entire audience burst out laughing. It turns out that the interpreter couldn’t translate the joke, and admitted to telling the audience, “President Carter told a funny story. Everyone must laugh.” One big misconception that seems to continue in lending is that home buyers still need to come up with a 20 percent down payment. A misconception in our biz is a focus on volume. It should be on units: underwriters and LOs do X units per day or month, not a dollar volume. The MBA expects $1.5 or $2 trillion this year, but the units are expected to be the lowest in decades. Wrapping up on misconceptions, out in California, Etienne Constable was told to build a 6-foot fence to hide the boat from view of his neighbors… But he got an image of the boat painted onto the fence. (Found here, this week’s podcasts are sponsored by LoanCare. The mortgage subservicer is known for delivering superior customer experience through personalization and convenience. Its award-winning portfolio management tool, LoanCare Analytics, supports MSR investors with a focus on customer engagement, liquidity, and credit risk. Hear an interview with Loan Care’s Kevin Cooke and Eric Seabrook on a variety of topics germane to servicing, from prominent players in the MSR market and implications of fewer Fed rate cuts, to HELOC and second lien servicing.)

Builders’ confidence in the new home market retreated this month , the first decline since last November. The National Association of Home Builders (NAHB) reports that the NAHB/Wells Fargo Housing Market Index (HMI) lost 6 points from its April level, falling to 45. Derived from a monthly survey that NAHB has been conducting for more than 35 years, the HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor” and asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” A score above 50 for the HMI or any of its components indicates that more builders view sales conditions as good than poor. All three HMI component indices declined decisively in May. The HMI index charting current sales conditions in May fell 6 points to 51, the component measuring sales expectations in the next six months fell 9 points to 51 and the gauge charting traffic of prospective buyers declined 4 points to 30. NAHB economist Robert Dietz stated that the reason for the decline is the persistently high mortgage interest rates which have remained above 7 percent for the last four weeks. Dietz said, “The market has slowed since mortgage rates increased and this has pushed many potential buyers back to the sidelines. A lack of progress on reducing inflation pushed long-term interest rates higher in the first quarter and this is acting as a drag on builder sentiment. The last leg in the inflation fight is to reduce shelter inflation, and this can only occur if builders are able to construct more attainable, affordable housing.”

First off: the bond market rallied after the CPI data came out and remains in much stronger territory vs yesterday.  That said, the more context we add, the more underwhelming today becomes. As we advised yesterday, even an “as-expected” CPI would result in bond market volatility and that’s what we’re seeing so far.  Thankfully, the volatility is in favor of lower rates.  This would have been the case without the weaker retail sales data, but that’s certainly adding to the gains.  With 10yr yields down only 6bps in the 10am hour, this is shaping up to be one of the least volatile potential reactions to today’s data.

To emphasize the underwhelming volatility, we need only look back two weeks to the NFP reaction.

Last but not least, consider that the April 10th CPI reaction was nearly twice as big as the NFP reaction and in much higher volume.

The litigation filed against Mr. Cooper accuses it of charging borrowers a “junk fee” of $25 for a payoff quote statement.

Radian joins existing shareholders in the new financing, which adds to a Series A round of $19.8 million conducted in 2020.

Coming off of what was considered a weak start to the spring season, mortgage applications for newly built homes rose 22% over the prior year, the Mortgage Bankers Association said.

Stakeholders are watching carefully as the 2023 crisis and a capital proposal increase banker wariness of mortgage assets, speakers at Invisso’s MBS Forum said.