“My dog is really worried about the rising price of groceries, with a can of dog food now costing $3. That’s $21 in dog money.” As I travel and speak with originators, besides the regulatory environment being a concern (the latest example being the CFPB suing Freedom Mortgage yesterday), the cost to produce a loan is still a problem, and for some it is about to worsen. The last MBA’s study calculated that total loan production expenses (commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations) were $11k per loan in the second quarter. Talk of another round of credit cost changes swirl, good and bad, similar to the end of last year, prompted by Fair Issac and rippling through the bureaus and CRAs. (Any questions should be addressed to your credit provider.) (Today’s podcast can be found here. This week’s is sponsored by NotaryCam, your partner for The Perfect Close! Ease of use, additional closing compliance, better borrower experience, reduced timelines, and cost savings, what is stopping you from getting on the RON train with NotaryCam? Listen to an interview with Servbank’s Johnny Spagnola on the steps companies can take to the improve customer experience.) Lender and Broker Software, Products, and Services Just as the caterpillar emerges from its cocoon with the ability to soar, SimpleNexus has rebranded as the nCino Mortgage Suite and is ready to reach new heights. Since being brought under the nCino umbrella in January 2022, SimpleNexus has been infused with additional resources that allow it to push boundaries and set the bar for what mortgage technology should be. Join us for a special Town Hall at MBA Annual, where nCino’s Matt Hansen and Ben Miller will share exciting plans for nCino’s Mortgage Suite on Tues., 10/17, from 4-4:30 pm. Click here to save your seat or stop by our booth during Expo hours.

The shape it takes could have implications for how Fannie Mae and Freddie Mac price loans for nonbanks and depositories.

The current Treasury yield curve is leading homeowners to pay mortgage rates at least 120 basis points more than they should, equal to an extra $245 a month on a $300,000 loan, their letter said.

Arizent released the findings of its third annual DEI report.

New American Funding’s Patty Arvielo found hiring initiatives can help match lending with demographics but says hurdles to recruiting in general are high now.

Lenders are rolling out less sensitive products such as adjustable rate loans and non-qualified mortgages.

The average mortgage lender is quoting a top tier 30yr fixed mortgage rate that is nearly a quarter of a percent lower than the same scenario last Friday.  Granted, big moves like this are more common after hitting multi-decade highs, but today’s example has other motivations. Specifically, the outbreak of the Israel-Gaza conflict prompted some excess demand for safer haven assets like US Treasuries and mortgage-backed securities.  Perhaps more importantly the conflict creates geopolitical uncertainty that is seen as one more reason for the Fed to “wait and see” when it comes time to decide whether to hike rates one more time in 2023 or not.  Last but not least, today’s rate movement was bigger than it otherwise might have been due to the bond market holiday.  Most mortgage lenders did not update their rate offerings yesterday, thus facing the need to account for an additional day of global events.  Frequently, this wouldn’t matter, but things are different when global events are having a big impact. Regardless of the new motivations behind today’s rate rally, old motivations are still important.  Specifically, if economic data falls far from expectations in the coming days, rates would likely react–especially for Thursday’s Consumer Price Index (CPI). 

News of the Hamas bombing of Israel dominated headlines after markets closed last week.  As the situation escalated over the weekend, financial market had motivation for volatility as the new week began.  Bond market gains were relegated to the futures market, and while that trading implied lower yields, those sorts of overnight/holiday moves are never guaranteed to stick around by the time cash trading is back online.  In this case, however, the gains stuck.  Along with gains in stocks, they speak to the belief that uncertainty surrounding this conflict is another reason for the Fed avoid additional rate hikes.

When war breaks out, there’s always some wisdom in expecting Treasuries to benefit from safe-haven buying.  It’s likely a factor in the current gains, but perhaps not the most important factor.  If it were, we would expect to see stocks moving lower.  The fact that they’re rallying well, and with strong inverse correlation versus Treasury yields suggests the Fed accommodation trade is the bigger factor. 

Rate Rally More to Do With Fed or Flight to Safety?

Bonds rallied fairly sharply to start the holiday-shortened week.  The most obvious source of motivation was a flight to safety driven by the Israel-Gaza conflict, but that explanation raises questions due to the stock market also improving (a true flight to safety would see stocks move lower). A slew of friendly Fed comments helps everything make sense.  The Fed increasingly sees the bond market doing more of the heavy lifting on creating tighter financial conditions, thus obviating additional Fed rate hikes.  One could even say that the attacks over the weekend suggest that the Fed err on the side of steady rates vs rising rates at the next meeting (thus providing a way to reconcile both of the competing market motivations).  

Market Movement Recap

09:20 AM Much stronger overnight. 10yr down 11.9bp at 4.686.  MBS up just over half a point. 

11:56 AM Sideways for the first 2 hours and now improving to the day’s best levels.  MBS up almost 3/4ths and 10yr yields down 18bps at 4.624.

02:21 PM Off the best levels.  MBS still up almost half a point.  10yr still down 15bps at 4.655. 

04:17 PM Earlier weakness failed to materialize into serious selling.  MBS up almost 5/8ths.  10yr down 15.2bps at 4.653.

“I dance like people wish they weren’t watching.” Someone sure is watching, and counting, empty houses. Lack of available housing inventory has helped keep housing costs high throughout many of the nation’s big cities, but nearly 5.5 million homes sit vacant across the nation’s 50 largest metropolitan areas. The average vacancy rate across these 50 metros is 7.22 percent, with New Orleans (13.9 percent), Miami (12.7 percent), and Tampa (12.2 percent) having the highest vacancy rates. Vacancy rates are lowest in Minneapolis, Austin, and Washington, D.C., the only metros in the study with vacancy rates below 5 percent. Just because an area has a high vacancy rate doesn’t necessarily mean that there’s something wrong with its housing market. Roughly one-quarter of vacancies are due to being empty for rent, one-fifth because they’re only used part time, and one-twelfth because they’re being repaired or renovated. (Today’s podcast can be found here. This week’s is sponsored by NotaryCam, your partner for The Perfect Close! Ease of use, additional closing compliance, better borrower experience, reduced timelines, and cost savings, what is stopping you from getting on the RON train with NotaryCam? Listen to an interview with Curinos’ John Sayre on key data points from the residential lending markets and how lenders are utilizing that data to make more informed decisions.) Lender and Broker Software and Services “If you’ve got buyers who need just a little more cash, get to know Down Payment Resource and its nationwide database of down payment assistance (DPA) programs for FTHBs, repeat buyers, teachers and first responders to name a few. At MBA Annual, catch DPR’s Rob Chrane on a panel with loan Depot’s Mosi Gatling, FormFree’s Christy Moss, iEmergent’s Laird Nossuli and Movement Mortgage’s Montell Watson to explore DPA’s role in reaching mortgage-ready borrowers (Tues. 10/17 @ 3 pm). Need more now? Schedule a meeting with us at Annual or download this case study on how Gatling produces nine figures working with the Nevada Rural Housing Authority to assist first-time, military and low-income buyers.” (STRATMOR’s current blog is titled, “Mind the Down Payment.”)