This morning I head from Chicago to Orlando along with 74 million others (yearly). More fun with numbers: Although the MBA thinks we’ll fund about $1.7 trillion in 2023, weekly applications continue to reflect a declining market so let’s use $1.5 trillion to make the numbers easier. That averages out to $6 billion per business day of production. The Fed is looking to offload $13 billion in MBS from bank seizures. To keep things in perspective, that is only two days’ worth of production, certainly not enough to “swamp the boat.” Perspective is good, and here’s another example. Higher and volatile interest rates, uncertainty about property values, and stresses in some property markets have increased pressure on some loans and properties. Accordingly, MBA reported that commercial and multifamily mortgage delinquencies increased in the second quarter of 2023. Even with the uptick in delinquency rates, they remain at the lower end of historical ranges. Loans backed by properties (and property types) with stable cash flows, are faring better than those that may have seen declines in incomes. (Today’s podcast can be found here and this week’s is sponsored by SimpleNexus, an nCino Company, and award-winning developer of mortgage technology for modern lenders. Hear an interview with C2 Financial and Revest Homes’ Jim Black on how originators can win business in a tough rate environment.) Lender and Broker Software, Products, and Services Amidst changing QC requirements and increasing repurchase risk, lenders must invest in automation to drive efficiency and protect profits. The industry needs to shift its focus from crisis management to prevention with proactive QC. Not only does this approach set lenders up for success regardless of the origination environment, but it’s also a regulatory imperative now that Fannie Mae requires lenders to conduct pre-funding QC on a minimum of 10% of their production. ACES Quality Management empowers mortgage lenders and servicers to take control of their operations and embrace proactive QC. ACES seamlessly combines cutting-edge technology with comprehensive data analysis, giving mortgage professionals the tools they need to identify, anticipate and rectify potential issues in near real time. Learn why financial institutions and third-party providers rely on ACES.

High mortgage rates and little inventory explain why over 60% of homeowners did or will perform a repair project in the next year, a LendingTree survey found.

The move comes after the e-commerce giant has provided some $1.7 billion to create or preserve affordable rental units as part of a $2 billion initiative launched two years ago.

Following New York Community Bancorp’s acquisition of Flagstar, the company is ditching the regional bank brands that it long used. CEO Thomas Cangemi calls Flagstar a “neutral” but “patriotic” name that underscores the firm’s nationwide expansion strategy.

The mortgages are part of a program that received congressional scrutiny earlier this year.

But at the same time, the publicly traded company is selling off another type of housing finance asset to some large depository institutions.

Today’s big to-do was the release of August’s Consumer Price Index (CPI), a critical inflation report with the power to significantly influence rate momentum.  In a nutshell, if inflation came in higher than expected, odds favored higher rates and vice versa.  Luckily, those odds didn’t pan out. While headline inflation at the core level (excluding food/energy) was right in line with expectations in year-over-year terms, the monthly count was a bit higher than expected.  The variation is due to rounding (i.e. core monthly inflation was 0.278% but rounded up to 0.3%). Markets had been expecting 0.2%. The 0.3 vs 0.2 result in monthly core inflation should or could have been enough to push rates higher today.  Indeed, bonds initially agreed as both 10yr Treasuries and mortgage-backed securities (the stuff that dictates mortgage rates) shot to their worst levels in several weeks in the moments following the data. But then the paradoxical reaction set in.  After about an hour, bonds were back to pre-data levels and they continued to make modest improvements into the afternoon.  This allowed the average mortgage lender to offer slightly lower rates compared to yesterday, but the change is small enough that it would only show up in the form of slightly lower upfront costs (the rate itself would be the same as yesterday). As for the “why” behind the paradoxical reaction, let’s put it this way: if rates had moved slightly higher today, we wouldn’t take the time to tell you why they should have gone lower, nor would we have much to point to inside the CPI data to support that conclusion.  As such, the best we can say is that traders must have been braced for an even higher result and the actual numbers were close enough to the range of expectations to avoid triggering new concerns.

Core month-over-month CPI came in at 0.3% versus a 0.2% forecast.  This would be bad for bonds at first glance, and indeed it was–at least initially.  But after some early selling, bonds are moving into positive territory. 

What’s with the paradox?!  Today will end up being one of those days where analysts are forced to find a narrative to fit the price action.  The 0.1% decline in shelter inflation is one of the first places we’ll all be starting. 

What’s Up With The Paradoxical Post-CPI Rally?

The bond market stared down today’s month-over-month core CPI reading (0.3% vs 0.2% forecast) and after sweating for a bit, decided it wasn’t threatening enough to change the narrative. There was a heavy dose of initial volume, but after yields popped to the highest levels in several weeks, buyers were accounting for more of that volume.  If we attempt to explain that buying with internal components of the report, we’re forced to lean fairly heavily on the drop in shelter inflation.  Excluding shelter, core services inflation actually rose in a way that suggests the fight is not yet over.  As such, we’re forced to conclude the market was simply braced for more of a spillover from August’s fuel price spike.   

Econ Data / Events

Monthly Core CPI

0.3 vs 0.2 f’cast

Headline CPI, y/y

3.7 vs 3.6 f’cast

Monthly Headline CPI

0.6 vs 0.6 f’cast, 0.2 prev

Market Movement Recap

09:00 AM Weaker overnight, more selling after CPI, but bouncing back now

12:31 PM Nice recovery underway.  10yr down 2.8bps at 4.252.  MBS up an eighth of a point. 

01:11 PM Minimal reaction to 30yr bond auction.  10yr down 3.5bps at 4.245.  MBS up 3 ticks (0.09). 

03:05 PM Near best levels with MBS up a quarter point and 10yr down 3.5bps at 4.245.

McDonald’s taking 9 years to eliminate its self-serve soda pop machines. (Couldn’t they take 5 hours and just move the machines behind the counter?) In other non-mortgage news, arguably more interesting to talk about than the continued decline in mortgage applications and IMBs concerned about CRA requirements (STRATMOR’s current blog is titled, “Knowing CRA Developments is Critical”), remember when it was Ford, GM, and Chrysler? The third largest automaker in the world is VinFast, a Vietnamese electric vehicle manufacturer that was founded in 2017 and listed on the Nasdaq this month with a market cap of $191 billion! This is behind only Tesla ($760 billion) and Toyota ($270 billion), and well ahead of Chinese car maker BYD ($90 billion) and Volkswagen ($70 billion). VinFast, which entered the electric vehicle market last year, is planning to build a factory in North Carolina. Oh, and Ford is at $49 billion, GM $46 billion. Yes, rankings of all industries change, including mortgage originations. (Today’s podcast can be found here and this week’s is sponsored by SimpleNexus, an nCino Company, and award-winning developer of mortgage technology for modern lenders. Hear an interview with Blend’s Nima Ghamsari on how mortgage companies are taking the customer experience to the next level.) Lender and Broker Software, Products, and Services Lenders must adopt an omnichannel communication strategy to stand out in a competitive mortgage marketplace. This can be easily done if you have the right tools on your side! Through the acquisition of Black Knight, ICE now offers Surefire℠, a CRM and Mortgage Marketing Engine, that gives its users full control over every marketing and communication channel from day one. Surefire is empowering lenders with the perfect combination of automated marketing features in one affordable, single-price “Power Pack” add-on. The offering bundles Surefire Power Calls, Power Messaging and Power Videos into a plug-and-play value pack for lenders and brokers. For hands-free marketing that packs a punch from day one, look no further than Surefire PowerPack.