Adjustable-rate mortgages nabbed their largest share of activity in almost a year, as the 30-year conforming average inched closer to 8%, the Mortgage Bankers Association said.

Our rate index has rapidly grown in popularity and exposure in recent years because it is timely and because it accounts for upfront costs in a way that other single-number indices cannot.  Because we began this effort in 2009, we can only technically say our index is the highest in 14 years, but there’s no question that today’s mortgage rates are the highest in 23 years. That’s actually rather unremarkable given the prevailing trend in rates.  “8%” may be an interesting milestone for headlines, but it isn’t much higher than yesterday’s 7.92%–also the highest rate in 23 years.   The first break above the 23 year ceiling took place in late 2022 and it wasn’t challenged again until August of 2023.  Since then, however, we haven’t made it more than a few weeks without hitting a new long-term high.  The time since the Fed’s September 20th announcement has been particularly bad with SEVEN new 23 year highs in less than a month. [thirtyyearmortgagerates] While unfortunate, this is also rather unremarkable.  This is a rising rate environment.  Bonds/rates are increasingly capitulating to the notion of “higher for longer.”  It makes for a typical market pattern where the swings between highs and lows are smaller but more frequent.  In that sense, today was just another day on the same old path. But where is that path leading?  Are rates headed to 10%?  It’s too soon to say or know.  Certainly, we would never want to rule out the possibility of any interest rate that is only 2% away from current rates.  On the other hand, if the Fed is correct in their assessment that no further rate hikes are needed to facilitate monetary policy, it would take increasingly surprising data/events to push rates higher at the prevailing pace. 

Just Another “Worst Day Since…” Type of Day

In a rising rate environment where long term boundaries have recently been broken, it doesn’t necessarily take big news in order to say things like “highest mortgage rates in 23 years” or “highest bond yields since 2007.”  In fact, we’ve been forced to say such things on multiple occasions recently and today wasn’t special among them.  It would be a mistake to give any credit to this morning’s housing data as a market mover.  If there was any connection between events and bonds, the best candidate was a Biden speech calling for big spending on overseas war efforts.  Bottom line: markets are increasingly willing to react to any new implications for Treasury issuance.

Econ Data / Events

Housing Starts

1.358m vs 1.38m f’cast, 1.269m prev

Building Permits

1.473m vs 1.45m f’cast, 1.541m prev

Market Movement Recap

09:12 AM Sideways to slightly stronger overnight, but giving up gains early.  10yr up 3.4bps at 4.872.  MBS down a quarter point.

12:24 PM Additional weakness into mid-day.  10yr up 7.3bps at 4.911.  MBS down 10 ticks (.31).

04:33 PM Yet again, a flat afternoon after AM weakness.  Both MBS and Treasuries unchanged from the last update. 

The full name of this program is USDA Rural Housing Guaranteed Loan Program . We’ll simplify its name here to the USDA Loan . If you prefer, our office calls it the Meat Loan. This is the first of two articles. Article number one introduces the program’s benefits . Article two covers the qualifying aspect, which is easier than most consumers anticipate. We’ll need a program to compare to USDA, so we’ll use its closest relative, the FHA loan program. Let’s get to the first USDA loan benefit: 1. No down payment required That’s right, USDA loans require no down payment and have a standard 30-year fixed term. 2. Nominal mortgage insurance In 18+ years of lending I’ve encountered zero home buyers who want or like mortgage insurance. Compared to similar down payment options across other programs, USDA loans require lowest-in-class mortgage insurance. Government loans split their mortgage insurance (MI) between an upfront fee, financed into the loan amount, and the MI that contributes to the payment amount. The MI that contributes to one’s payment is known by different names, but we’ll call it the mortgage insurance factor or MI factor .
USDA’s MI factor, also called its Guarantee Fee, is 0.35% . This program requires 0% down.
USDA’s upfront fee is 1.00% or 0.01 times the loan amount, financed into the loan.
FHA’s MI factor, also called its Mortgage Insurance Premium is 0.55% . This program requires at least 3.5% down.
The upfront government fee for FHA is 1.75% , also financed into the loan amount.

Mortgage applications fell again last week as interest rates rose into the high 7 percent range. The Mortgage Brokers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, decreased 6.9 percent on a seasonally adjusted basis from one week earlier and was down 7.0 percent on an unadjusted basis. There was a federal holiday (Columbus Day) during the week, but MBA did not find it necessary to adjust its data to account for the limited impact on mortgage activity.    The Refinance Index decreased 10.0 percent from the previous week and was 12.0 percent lower than the same week one year ago. The refinance share of mortgage activity decreased to 30.5 percent of total applications from 31.6 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index decreased to 6.0 percent and the unadjusted version declined by 5.0 percent compared with the previous week. Application activity was 21 percent lower than the same week in 2022.   [purchaseappschart] “ Applications decreased to their lowest level since 1995 , as the 30-year fixed mortgage rate increased for the sixth consecutive week to 7.70 percent – the highest level since November 2000,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “ Both purchase and refinance applications declined, driven by larger drops for conventional applications. Purchase applications were 21 percent lower than the same week last year, as homebuying activity continues to pull back given reduced purchasing power from higher rates and the ongoing lack of available inventory. The ARM share was 9.3 percent, the highest share in 11 months, as some borrowers look for alternative ways to lower their monthly payments. Refinance activity was at its lowest level since early 2023. There is very limited refinance incentive with mortgage rates at multi-decade highs.”

“What do you call a bovine with a stutter that makes chocolate milk? Cacao.” Speaking of sweets, hats off to Byte’s booth at the conference for dishing out some amazing s’mores brownies here in Philadelphia. (They will be my breakfast on my flight out this morning.) The brownies are sweeter than the upcoming credit report cost increases (there is definitely a shift to lenders having borrowers pay for credit reports up front, not eating the cost of reports run on loans that don’t fund), the search by IMBs for HELOCs and 2nds and jumbo outlets, the talk of distant future EPO (early pay off) penalties when rates decide to drift down, and continued over-capacity and cost cutting until then. That said, there is good news for existing homeowners trying to build net worth: house prices hit another peak in September per one measure. (Today’s podcast can be found, after 8 AM ET, 5 AM PT, here: Sponsored by nCino, maker of the nCino Mortgage Suite, built for the modern mortgage lender. The nCino Mortgage Suite unites the people, systems, and stages of the mortgage process. Hear an interview with Think Mortgage’s Anthony Focca on how originators are winning business in a tough rate environment.) Lender and Broker Software, Products, and Services Here’s a bit of an unusual ad, but what the heck? Here is a list of domain names available for purchase: DirectJumboMortgage.com, DirectFHAMortgage.com, BestRateMaryland.com, BestRateVirginia.com, BestRateVA.com, BestRateVALoans.com, and JumboPortfolioLoans.com. If you are interested in a discussion with the owner, contact David Horvath.

Providing support to affordable rental developments is a key component in the Biden administration’s efforts to increase housing supply.

Retail sales exceeded all forecasts and industrial production strengthened last month, fresh evidence of a resilient American consumer whose spending is helping stabilize manufacturing.

The servicer said it entered into the consent order “without admitting any wrongdoing, to avoid the expense and distraction of litigation.”

But the industry will still have to go through some pain in 2024, Wharton Professor Susan Wachter told attendees at the Mortgage Bankers Association annual convention.