Sen. Robert Peters, D-South Shore and Rep. Debbie Meyers-Martin, D-Matteson will spearhead the endeavor.

Lenders appear to be loosening underwriting a little and the construction industry may be on track to lower new home prices by 10%-15% this year.

But a surge of the 30-year conforming rate to a high last seen in 2001 helped drive overall borrowing lower, even as buyer interest in government-backed products grew, the Mortgage Bankers Association said.

But overall volume is still expected to be 38% lower than 2022’s commercial real estate originations, as higher interest rates remain a drag.

If you could time travel back to October 20th, 2022, you’d find mortgage rates that are just a hair higher than today’s at most lenders, but the difference is now too small to care about.  Not only that, but many scenarios at many lenders would be slightly worse today. The unfortunate thing about a rate being higher than it was on October 20th, 2022 is that you’d have to go back more than two decades to see anything higher.   Placing our existing pain in a historical context doesn’t offer much incremental benefit.  How about understanding WHY rates continue rising regardless of progress on inflation–the thing that was supposed to be the key motivation for the spike.   Motivations are ongoing/general and new/specific.  Today’s didn’t actually add much to the bigger picture.  Economic data wasn’t highly consequential, but it offered no objection to the notion that high rates have failed to cause significant economic pain outside rate-sensitive industries.   Even in the VERY rate-sensitive housing market, this morning’s data conveyed another in-trend result for residential construction, with housing starts and building permits coming in very close to forecasts just over an annual pace of 1.4 million units. Why does that matter?  Because, as the Fed reminded us via today’s release of the “minutes” from their last meeting, they want to see some ill effects of their rate hikes on the economy before they consider cutting rates.  Bottom line: we’re no longer just waiting for inflation to fall back to target levels, but also for economic data to take a turn for the worse.

OK Rates… Explain Yourself!

Today’s Fed Minutes were uneventful with a volume spike that didn’t even eclipse those seen after today’s 8:20am CME open or the 9:15am Industrial Production data.  That puts them in very forgettable company among potential market movers.  Nonetheless, bonds sold off moderately into the afternoon.  This has less to do with things that happened today and more to do with the general trend.  Inflation is moving into the ensemble cast while growth, issuance, and the yield curve are getting more lines.  

Econ Data / Events

Housing Starts

1.452m vs 1.448m f’cast, 1.434m prev

Building Permits

1.442m vs 1.463m f’cast, 1.441m prev

Industrial Production

1.0 vs 0.3 f’cast, -0.5 prev

Market Movement Recap

10:12 AM Weaker at 8:20am CME open, but stronger now.  10s down 1.6bps at 4.203 and MBS up 3 ticks (0.09).

11:49 AM Giving up some ground now with MBS down 2 ticks (0.06) and 10yr yields up 1.4bps at 4.233.

01:35 PM Weakest levels ahead of Fed Minutes.  10yr up 2.9bps at 4.248.  MBS down an eighth (.125).

02:17 PM Slightly weaker after Fed Minutes, but not a huge move.  10yr up 3.5bps at 4.254.  MBS down 7 ticks (.22)

04:18 PM More selling.  10yr up 5bps at 4.268 and MBS down just over a quarter point.

Not to be confused with an actual Fed Day Announcement, today’s Fed Minutes simply offers a more detailed account of the meeting that took place 3 weeks ago.  This was the most interesting meeting in recent memory as it was the first time during this rate hike cycle that the Fed decided to pause/skip/forego another hike. 
Their line of thinking is probably already fairly well understood by the market, but additional insights can always arise from the Minutes.  We’d like to hear more about their thoughts on bank lending tightening, the notion of cutting rates while continuing balance sheet normalization, and the consensus on the time frame to hold the Fed Funds Rate at the terminal/ceiling level.
To be sure, the market is increasingly fully onboard with the Fed having reached that ceiling.  Fed Funds futures contracts for the next few meetings are all converging on current rate levels.  As a reminder, this is why 2yr Treasuries have outperformed 10yr Treasuries (2s are more anchored to Fed rate expectations).

If I am not borrowing money, the impact of higher rates isn’t a big direct hit to my lifestyle or spending. But if I had a credit card from Kohl’s, paying 30 percent would sure dissuade me from buying something and putting it on “layaway.” Lowe’s? 28.99 percent. Nordstrom’s is over 31 percent! With credit card debt moving about $1 trillion for the first time ever, something has to slow down, right? Today I head to Las Vegas, forecast 103 degrees, and I have already been fielding emails about lenders are selling servicing, busy further cutting costs, or making sure they collect money that is due them (like appraisal fees, as noted in this STRATMOR piece). Some companies are looking to acquire or be acquired. Mergers and acquisitions don’t only happen with lenders. For example, yesterday, in the compliance consulting biz, Firstline Compliance announced that Mark Wilson, Managing Partner, and Dustin Pfluger, Partner and Mortgage Banking Practice Leader at mortgage banking audit, accounting, and tax specialists, CWDL, made a significant strategic investment in the company, joining Troy Garris, Co-Managing Partner of Garris Horn, LLP, and Josh Weinberg, President of Firstline Compliance, as investors in the company. (Today’s podcast can be found here and this week’s is sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, technology and other services to the mortgage industry for almost four decades. Hear an interview with Richey May’s Seth Sprague on the servicing retain versus release decisions and the current environment.)

Increased mortgage rates continued to damp down both purchase and refinance activity during the week ended August 11. The Mortgage Bankers Association said its Market Composite Index, a measure of mortgage loan application volume, decreased 0.8 percent on a seasonally adjusted basis from the prior week and declined by 2 percent before seasonal adjustment.   The Refinance Index fell 2 percent and was 35 percent lower than the same week one year ago. The refinance share of mortgage activity decreased to 28.6 percent of total applications from 28.7 percent week-over-week. [refiappschart] The seasonally adjusted Purchase Index was unchanged from the prior week and slid 2 percent on an unadjusted basis. Purchases were 26 percent lower than during the same week in 2022. [purchaseappschart] “Treasury rates were elevated again last week following mixed data on inflation and more indication of resiliency in the economy, which may pose a challenge to the Federal Reserve’s efforts to lower inflation. The 30-year fixed mortgage rate increased for the third straight week, reaching 7.16 percent, matching October 2022’s rate and the highest rate since 2001 ,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Overall applications decreased because of these higher rates, as both purchase and refinance applications ended the week at their lowest levels since February 2023. Government purchase applications provided a bright spot, increasing 2.4 percent over the week, driven by increases in both FHA and VA purchase categories. The ARM share of applications rose slightly to 7 percent, the highest since April 2023, as borrowers look[ed] for relief from higher fixed rates.” 

The new entity from Roc360 will be an outlet for loans produced by the company and its two recently acquired businesses, Civic Financial and Finance of America Commercial.