A second class action has been filed in the state of California and more cases are brewing.

Connecticut issued a cease and desist order, alleging that Loansnap used unlicensed originators to solicit borrowers and accept loan applications in violation of multiple federal laws.

Uneventful Week. How About The Next One?

Sure… rates moved a bit higher this week as the bond market continued the process of a modest correction against the Nov/Dec exuberance.  But Nov/Dec was just that: exuberant.  Most of it was justified, but things got a bit too optimistic by the time the Fed’s dot plot came out.  Moreover, additional gains would have required the type of economic data that we just didn’t see over the past 4 weeks.  With all that in mind, what is the Fed going to be able to say to surprise us next week?  Probably not much, but markets will immediately begin extrapolating any big beats/misses in the big economic reports to its assessment of what the Fed will say next time.

Econ Data / Events

monthly CORE PCE

0.2 vs 0.2 f’cast, 0.1 prev

annual CORE PCE

2.9 vs 3.0 f’cast, 3.2 prev

Market Movement Recap

08:53 AM Flat overnight.  2-way volatility after PCE data.  MBS roughly unchanged.  10yr down less than 1bp at 4.112

11:19 AM position-driven selling into the 9:30am NYSE open, but recovering a bit since then.  10s up 2.3bps at 4.143.  MBS down 3 ticks (.09).

12:58 PM sideways after modest recovery.  MBS down 2 ticks (.06) and 10yr still at 4.143.

Over the past 2 months, speculation ramped up quickly regarding the pace and magnitude of Fed rate cuts in 2024. Next week brings the first Fed meeting that’s in the realm of that speculation. Some pundits went so far as to mention a chance of a rate cut as early as the January meeting.  Could that happen and what would the implications be of rate cuts in general? First off, the market doesn’t really believe this will happen.  There were a few days where some of the trades in Fed Funds Futures suggested an outside possibility of a January rate cut, but that has since been priced out of the market. There has certainly been a shift in the market’s assessment of the Fed’s stance.  It took place with strong momentum in November and December. The Fed itself added to the momentum with the rate-friendly announcement on December 13th. Since then, however, we have not seen the sort of economic data necessary to fulfill the conditions of a Fed rate cut cycle.  This isn’t to say it can’t happen in 2024–only that it’s too soon to debate.  At the very least, we know we haven’t met those conditions yet. But what about core inflation returning to 2%?  After all, that’s the Fed target and this week’s GDP data did show core PCE at 2% quarter-over-quarter. This is not an optical illusion, but it’s important to understand the 2% inflation target is an annual metric.  The chart above shows lots of promise based on Q4 of 2023.  Now we need to make sure 2% inflation sticks around so the annual chart can align with the quarterly chart.

Pending home sales surged last month, far exceeding analysts’ expectations. The National Association of Realtors® (NAR) said its Pending Home Sales Index (PHSI) rose 8.3 percent compared to November. December’s PHSI reading of 77.3 was 1.3 percent higher than a year earlier. The PHSI is based on the number of contracts to purchase single-family homes, townhomes, condominiums, and cooperative apartments. It is viewed as a leading indicator of home sales over the ensuing few months. NAR will publish its report on January’s existing home sales on February 22. Analysts polled by Econoday had forecast an increase in the PHSI of 1.3 percent.  Perhaps because the PHSI posted no change from October to November, the estimates were unusually broad, ranging from an increase of 0.7 percent to 3.9 percent. Trading Economics was slightly closer to the mark with a consensus forecast of 1.5 percent. “The housing market is off to a good start this year, as consumers benefit from falling mortgage rates and stable home prices,” said Lawrence Yun, NAR chief economist. “Job additions and income growth will further help with housing affordability, but increased supply will be essential to satisfying all potential demand.” Except for the Northeast, regional returns were mostly positive. The PHSI in the Northeast dropped 3.0 percent from last month to 62.3, an annual decline of 3.9 percent.  The Midwest index rose 5.6 percent to 80.5, up 4.3 percent from one year ago.

Once upon a time,  the bond market looked to the PCE inflation data as the definitive measurement of the Fed’s success regarding the 2% target.  One would think that such a report would be a bigger market mover, but today’s has two things going against it.  First off, CPI is the market’s first choice when it comes to reaction to inflation data these days. On a more timely note, today’s data was right in line with expectations at the core monthly level.  This made for a brief, 2-way reaction to the internal components of the data, but one that ultimately left bonds unchanged.  It also left trading levels at the mercy of positional motivations at the 9:30am NYSE open.

Life is a matter of perspective, and LOs and vendors don’t need some momentous weekly or monthly numbers to garner a piece of the $1.5-$2 trillion residential mortgage market. Even bikes see possible change. Many lenders and vendors are working to “make the ordinary extraordinary.” Are drug stores and gas stations boring? Not according to Wall Drug and Buc-ee’s. What is the current mortgage rate situation for borrowers who have home loans? Below 6 percent? 92 percent of U.S. mortgaged homeowners. Below 5 percent? 82 percent. Below 4 percent? 62 percent. Below 3 percent? 24 percent. Yet about 1/3 of applications coming into lenders, per the MBA, are refinances! (Today’s podcast can be found here and this week’s is brought to you LoanCare, successfully navigating clients and homeowners through market change for 40 years. The mortgage subservicer delivers superior customer experience through personalization and convenience via its portfolio management tool, LoanCare Analytics™, supporting MSR investors with a focus on customer engagement, liquidity, and credit risk.) Disaster News and Program Updates What would life be like in the United States without disasters? The U.S. is prone to tornadoes, earthquakes, flooding, hurricanes, storms, volcanoes, and fires. FEMA is the official source of disaster declarations and when FEMA publishes them, lender and investor policies and procedures are triggered. From hurricanes to forest fires, the environmental impacts of climate change are becoming more pressing with each passing year. 90 percent of natural disasters involve some degree of flooding. Flood damage has cost Americans over $50 billion throughout the last decade.

Lawmakers criticized the Biden administration’s Risk Rating 2.0 effort — which was meant to reduce insurance premiums by developing more refined models — as ineffective, arguing that the program has increased rate premiums in vulnerable areas.

Even with the 9 basis point rise this week, they have remained at the same level since mid-December, and that should bring people into the market, Freddie Mac said.

Loan criteria such as credit scores, loan types and loan-to-value ratios are all weaker than those included in 2022 deals, Fitch said.