The rate of errors per loan jumped by 30% compared to the third quarter, a FundingShield report said.

What’s Up With Stronger Bonds Despite Stronger GDP?

We’re not huge fans of the GDP report as a consistent market mover for bonds/rates, but if any GDP release has a chance, it’s the “advance” (which is the first of 3 releases for any given quarter).  Today’s was quite a bit higher than the median forecast (3.3 vs 2.0).  If the market were truly interested in reacting to the economic implications of that number, we likely would have seen yields move higher.  Instead, bonds rallied.  While there were other components of the report that were more bond friendly as well as other economic reports that were more downbeat, traders were at least as interested in the spillover from European trading as today’s ECB announcement was seen as more dovish than expected.

Econ Data / Events

Jobless Claims

214k vs 200k f’cast, 189k prev

Durable Goods

0.0 vs 1.1 f’cast, 5.5 prev

Q4 GDP

3.3% vs 2.0 f’cast

GDP Deflator

1.5 vs 2.3 f’cast

Market Movement Recap

08:43 AM Modestly stronger after 8:30am econ data. 10yr down 4bps at 4.14%.  MBS up about 1 tick (.03) after accounting for illiquidity. 

11:06 AM resilience remains with help from Europe.  10yr down 5.2bps at 4.128.  MBS up 6 ticks (.19).

12:20 PM Some weakness in Treasuries, but not spilling over to MBS.  10yr down 3.7bps at 4.143.  MBS up 7 ticks (.23).

02:30 PM Holding near best levels after decent 7yr auction.  10yr down 5.4 bps at 4.126.  MBS up 7 ticks (.23).

Who doesn’t think swearing parrots are funny? Although you wouldn’t want your parrot talking about the clap when Aunt Beatrice comes over for Sunday dinner. I’m sure that every LO has heard their share of salty words, and they deal with much more for their clients than just a loan. Working with their client’s debts, assets, rental insurance until they buy a home, even servicing after the loan funds, you name it. Everyone across the nation is feeling the brunt of seemingly usurious homeowner insurance rates, and The Mortgage Collaborative’s Rundown tomorrow has Andrew Hellard, SVP of Products with Matic, discussing why homeowner’s insurance costs have skyrocketed. IMBs have not been retaining servicing. They needed the cash. Companies like Freedom, AmeriHome, Pennymac, and Planet Home have been buying up servicing. They will retain that customer if and when refinancing kicks in. Rate and term refis will probably go to the aggregators. They bought the servicing; they want to keep that customer. What percentage of customers will go back to the original lender, increasing the recapture rate? It may very well depend on what the customer service was like initially. (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. Hear an interview with Angel Oak Mortgage Solutions’ Tom Hutchens on his real estate market outlook for 2024 and securitizations in the Non-QM space.)

The average top tier conventional 30yr fixed rate hit its highest level in exactly 6 weeks yesterday.  Today’s movement was in the opposite direction.  Rates fell modestly despite today’s GDP report coming in stronger than expected. Stronger economic data is typically bad news for interest rates although it can depend on the report in question and the magnitude of the “beat.”  Today’s GDP was offset by a few other reports that were weaker than expected as well as some of the internal components of GDP itself which suggested cooler inflation (another thing that rates don’t like). Despite today’s drop in rates, we’re still close to the 6-week highs in the high 6% range.  Thankfully, the move up has been gentle and leaves a vast majority of the big drop intact from Nov/Dec.  Volatility has generally been subdued, but could easily increase in the upcoming business days as bigger economic reports are released.  

New home sales finished 2023 on a positive note , posting seasonally adjusted numbers higher than in both November and the prior December. The U.S. Census Bureau and the Department of Housing and Urban Development said sales of newly constructed homes during the month were at an annual rate of 664,000 units. Further, the November rate was adjusted from 590,000 to 615,000 units. The December estimate is 8.0 percent above the revised November estimate and a 4.4 percent improvement over the pace in December 2022.  Analysts polled by Econoday had a consensus forecast of 650,000. New home prices slipped slightly from a year earlier.  The median price of a home sold in December 2023 was $413,200 compared to $432,100 in December 2023. The average price fell from $495,600 to $487,300. [newhomeprices] On an unadjusted basis, sales last month were estimated at 50,000 units, up from 42,000 in November. For the entirety of 2023, sales totaled 668,000 units, a 4.2 percent increase over the 2022 sales of 641,000. At the end of the reporting period, an estimated 453,000 new homes were available for purchase, projected to be an 8.2-month supply at the current sales pace. This is nearly identical to the assumed inventory in December 2022. [newhomesall] December was a strong month in the Northeast . Sales increased 32.0 percent from November, although it was also the only region coming in lower (they were down 2.9 percent) on an annual basis.  In the Midwest , sales were up 9.2 percent and 6.0 percent over the previous two sales periods and the South posted increases of 10.6 percent and 3.7 percent, respectively. Sales in the West eked out gains of 0.9 percent month-over-month and 0.4 percent on an annual basis.

Today’s slate of economic data was/is the biggest of the week, by far.  Results were mixed at 8:30am with higher jobless claims and weaker durable goods offset by a big beat in Q4 GDP (3.3 vs 2.0 f’cast).  GDP itself was offset by its own price tracking data with the deflator dropping to a measly 1.5% versus a 2.3% forecast.  The more consumer-focused PCE price index was 2.0% at the core level.  Still, a big beat on the first reading of Q4 GDP is worth some concern about a bad bond market reaction.  Thankfully, there wasn’t more than a few moments of weakness before bonds rallied into moderately stronger territory.  Claims and price data are likely helping, but a European bond rally may be helping even more.

(NOTE: in the chart above, German 10yr yields are on a floating/overlaid axis… This morning’s drop was roughly 2.36% to 2.28%)

Having the opportunity to customize their own tech stacks was a key reason behind many top producers’ success, according to a new Floify survey.

Banks and Congressmen alike see U.S. regulators’ version of Basel III as overly stringent for the securitization market.

Home buying demand propelled overall volumes to a third straight weekly gain, as refinances fell, the Mortgage Bankers Association said.

Today’s mortgage rate recap is remarkably similar to yesterday’s.  Rates rose modestly from levels that were already near recent highs, thus technically setting another “highest in x weeks” milestone.  X = 6 in today’s case with Wednesday, December 13th being the last time lenders were offering conventional 30yr rates any higher.  NOTE: the rate chart on mortgagenewsdaily.com will show Dec 13th’s rate at 6.82, but that’s only because that chart marks the latest level of any given day.  The index actually began the day at 7.02%, which is still quite a bit higher than today’s mark of 6.95%.  As always, focus on the changes from one time frame to the next as opposed to outright levels. Today’s jump in rates was logical based.  At present, we expect to see rates reacting to economic data and other reliable market movers like Treasury auction results.  Both of today’s example were unfriendly, resulting in immediate deterioration in the bond market. Mortgage rates are based on bonds and when bonds are losing ground in the middle of the day, many lenders increase rates in the middle of the day.  That was ultimately what took today’s average to 6 week highs. To repeat the perspective offered on several recent occasions, current rates are still more than a percent lower than the highs seen in October.  Rates are neither doomed to spiral out of control, nor necessarily destined to plummet.  Their direction will be determined by the tone of economic data, inflation, and the Fed’s interpretation of all of the above.