The old joke, “Why don’t the Phillies have a website? Because they can’t string three W’s together!” is no longer true. The Phillies are doing just fine, and the MBA Annual is underway. Talk in the hallways includes the Community Home Lenders of America, National Association of Realtors, and Independent Community Bankers of America sending a letter calling on the administration to reduce the historically high, long-term mortgage rates relative to long-term Treasury bonds, and the supposed UMortgage financials (showing loans held for sale, typically the sign of a mortgage banker not a broker, but really, financials on Reddit?). For many IMBs, their goals by going to the MBA Annual here in Philadelphia include searching for the reason for the wide bid/ask spreads in MBS trading, the reason for the increased Agency buybacks (increased inspection rates and not taking chances on seller servicers not being around in the future, are usually mentioned as the culprits), finding the least expensive credit reporting company, a great HELOC and/or 2nd program, seeing what’s new with down payment assistance programs, and seeing the latest in under-served markets. There is, of course, the thread of continuing over-capacity, personnel, and technology cutbacks, as well as continuing to negotiate better deals with vendor partners. (By the way, anyone displaced can post their resume for free here where potential employers can view all the resumes for several months for only $75.) (Today’s podcast can be found 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 and interview with Fairway Independent’s Steve Jacobson on false reports of his company’s takeover and the problems with defamation.)

Last week was mostly good for mortgage rates, even if the goodness was made possible in large part by the badness of the previous week.  By Friday, rates were 0.15% lower than the previous Friday, on average.   As the new week begins, virtually all of that progress has been erased.  In other words, the average lender is now very close to the same rates seen on Friday, October 6th.  But why? Unlike those moments where we have a clear culprit like a strong jobs report or higher-than-expected inflation, today’s rate spike is the product of vague generalities.  If you’re determined to try to connect the dots, here are a few ways to try:
The gap between longer and shorter term bonds experienced increased volatility last week due to geopolitical issues and new messaging from Federal Reserve speakers. Part of today’s weakness is a reflection of that volatility continuing to play out.
Traders were more upbeat on bonds on Friday, possibly reflecting the closing of short positions (bets on higher rates, which are closed by buying bonds.  This pushes rates lower.) ahead of a weekend with increased geopolitical risk.  Those traders are re-entering their short positions at the start of the new week.
See… it’s pretty esoteric and not that satisfying of an explanation.  We may have a chance to see a more normal reaction function tomorrow after the release of the Retail Sales data for September.  Even then, geopolitics and Fed speeches can continue to cause unexpected volatility in the short term.  Moreover, we continue waiting on a unified theme of slower economic growth reflected in multiple reports before we’ll truly be able to identify a big shift back toward lower rates.

When loan officers have a broad, problem-solving focus — bolstered by diverse services, technologies and consistent attention to detail — their pipelines grow, writes the president of Incenter Lender Services.

The change, even if temporary, could help to reduce spreads to Treasurys and bring down rates, the Community Home Lenders of America, the Independent Community Bankers of America and the National Association of Realtors argue.

Property owners willing to restrict rental income will qualify for the terms of this new product originated by Delegated Underwriting and Servicing mortgage bankers.

Analysts say major single-day declines are historically attractive entry points for builders. Homebuilding stocks have only seen 55 instances of single-day declines of more than 5% since the global financial crisis, according to the firm.

JPMorgan Chase now tops Wells Fargo in third-party servicing, origination volume and on-balance-sheet home loans, according to company filings.

The Pittsburgh-based regional bank expects to save $325 million next year as it reduces its staff by 4%. Executives said the cuts are necessary because revenue has fallen amid a surge in interest rates and a decline in loan volumes.

Decent Recovery But MBS Underperform

On Thursday, 10yr yields came close to spiking 20bps, trough to peak, in the wake of hotter CPI data and a lousy 30yr bond auction.  That’s a brisk day of selling and one that didn’t line up with this week’s theme (adjusting to softer Fed comments and pricing in some safe-haven flows surrounding the Israel/Gaza War). Today’s rally started early and stayed strong all night.  A pop in consumer inflation expectations brought the rally to an end, but bonds held on to gains without any drama in the PM hours.  MBS underperformed along with the short end of the yield curve. 

Econ Data / Events

Import Prices

0.1 vs 0.5 f’cast, 0.6 prev

Export Prices

0.7 vs 0.5 f’cast 1.1 prev

Consumer Sentiment

63.0 vs 67.2, 68.1 prev

1yr inflation expectations

3.8 vs 3.2 prev

5yr inflation expectations

3.0 vs 2.8 prev

Market Movement Recap

10:11 AM Steady gains overnight, flattening out into domestic hours.  10yr down 7.6bps at 4.621.  MBS up a quarter point

11:46 AM Slightly weaker into mid-day.  Consumer inflation expectations aren’t helping. MBS up only an eighth on the day.  10yr down 5.8bps at 4.639.

03:42 PM Very flat all day after earlier selling.  10yr down 7.2bps at 4.625,  MBS up just over an eighth of a point.

After hitting the highest levels in decades last week, mortgage rates dropped sharply at the beginning of this week. At first glance, this was a classic flight to safety following the outbreak of the Israel-Hamas Conflict, but at the same time, markets were possibly just as interested in a change in tone from the Fed. The Fed’s last policy announcement was on September 20th and we won’t get the next one until November 1st.  Between now and then, the market refines its understanding of the Fed’s stance based on speeches given by regional Fed presidents and/or executive board members. First off, essentially every Fed speaker qualifies their comments these days by saying something to the effect of: “if the economy and/or inflation run hotter than expected, we may have to hike more.”  To be sure, that goes without saying at this point, so we will not say it again, but you can safely assume that it was present in all of the Fed speeches recapped below. Dallas Fed President Lorie Logan and Fed vice chair Philip Jefferson kicked things off over the 3 day weekend, sharing mixed comments on Monday.  Logan said that the recent run-up in long-term rates meant less of a need for the Fed to hike again.  Jefferson was even more encouraging, saying:
We have to balance the risk of not having tightened enough, against the risk of policy being too restrictive.
In assessing future policy changes, I will keep in mind that financial conditions are tighter due to higher bond yields.