The news helped drive 30-year mortgage averages above 7% last week, according to the Mortgage Bankers Association.

The lender and servicer posted its highest pull-through weighted gain-on-sale margin in almost two years while recording modest production growth.

Today is shaping up to be much less interesting than yesterday.  Bonds didn’t move nearly as much in the overnight session and began the day in roughly unchanged territory.  There have been modest gains early, but the fact that they were driven by the opening bell of the NYSE suggests they were tied to random tradeflows and positioning rather than reactions to data/events.  Today’s only notable calendar item is the 10yr Treasury auction at 1pm ET.  
With 10yr supply looming and yesterday’s 3yr auction being strong, it’s interesting to see 10’s outperforming shorter term notes so far this morning.

We’d normally be less surprised to see some weakness in 10s ahead of a 10yr auction, but as always, if such a thing is so normal to expect, markets would do their best to adapt ahead of time.  Perhaps this sentiment (“sell 10s defensively ahead of a higher auction amount”) was indeed a key driver of last week’s weakness and we’re simply seeing some normalization now.  This wouldn’t be the craziest idea in the world given the rapid steepening of the curve over the past few weeks and the apparent resistance forming around -75bps.

Bottom line: if today’s 10yr auction still manages strong stats without needing to undergo any additional pre-auction selling, it would offer additional validation for the thesis that this leg of 10yr selling has run its course.  From there, it would be up to inflation data to help 2s fall faster than 10s, thus allowing for additional steepening but without the “bear” designation.

Mortgage rates continued to move in a fairly narrow, sideways range on Wednesday–a trend that is very much in line with expectations from last Friday.  At the time, rates moved sharply lower off long-term highs.  The catalyst was a tame jobs report on Friday morning.  Looking ahead, the market knew it would have to wait for the Consumer Price Index (CPI) the following Thursday for the next instance of highly consequential economic data.   CPI comes out tomorrow morning at 8:30am ET.  Like the jobs report, it has the power to give rates a big push in either direction depending on the results of the data.  If inflation is higher than expected, rates could move back up toward recent highs.  If inflation falls below the median forecast, rates could move back into the lower range from two weeks ago.   Keep in mind that there are several different inflation metrics inside the CPI report.  The most important among them is the “core” month-over-month reading which excludes food and energy prices.  It’s not that those things don’t contribute to inflation.  Rather, they are volatile, so market participants can get a better idea of underlying inflation trends by filtering out as much of those impacts as possible.

“Once things were so tough for me, I worked at a cheap pizza shop to get by. I kneaded the dough.” Things are indeed tough out there. The other day I caught my cat Myrtle at the keyboard, apparently trying to show my new granddaughter Kozette how to apply for a loan to buy a tuna fishing boat. (I know, there’s a lot going on here.) Anyway, up on the screen was a website that will generate a paystub given whatever information you provide. How’d you like to be an underwriter, trying to assure that the borrower has the ability to repay, with this out there? Hence the need, obviously, for some kind of third-party verification service, right? Meanwhile, companies, large and small, continue to sell servicing rights in packages, large and small, in order to raise cash. Servicing is, pretty much, all a lender has in terms of net worth. And when their servicing is gone, well…? For a good bell weather of the general industry, yesterday we had loanDepot’s Q2 2023 financial results. To LD’s credit, forecasts were made when 2023 that money would be lost. And they were right! (Today’s podcast can be found here and is sponsored by SimpleNexus, an nCino Company, developer of mortgage technology uniting the people, systems, and stages of the mortgage process into one seamless, end-to-end solution. Hear an interview with AIME CEO Katie Sweeney on mortgage happenings in Washington D.C., and mortgage broker training programs built specifically for wholesale mortgage professionals.)

The downturn in mortgage application volume extended to a third straight week over the period ending August 4. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of that volume, decreased 3.1 percent on a seasonally adjusted basis and was down 4.0 percent before adjustment when compared to the prior week. The Refinance Index decreased 4.0 percent and was 37 percent lower than the same week one year ago. Refinancing applications accounted for 28.7 percent of the total, down from 28.9 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index fell 3.0 percent week-over-week on both an adjusted and unadjusted basis . Purchasing volume was 27 percent below its level during the same week in 2022.   [purchaseappschart] “Treasury yields rates rose last week and mortgage rates followed suit, due to a combination of the Treasury’s funding announcement and the downgrading of the U.S. government debt rating. Rates increased for all loan types in our survey, with the 30-year fixed mortgage rate increasing to 7.09 percent, the highest level since November 2022,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “ Additionally, the rate for FHA mortgages increased to 7.02 percent, the highest rate since 2002. Not surprisingly, mortgage applications continued to decline given these higher rates, with overall application counts falling for the third consecutive week, as both purchase and refinance activity declined. The purchase index fell for the fourth consecutive week, as homebuyers continue to struggle with low for sale inventory and elevated mortgage rates.”

The REIT issued its second securitization of the year in June, while also purchasing or locking $50 million in newly originated loans.

The Agency, a brokerage with a leading role in a Netflix show, names New American Funding their preferred mortgage provider, stripping that title away from CrossCountry Mortgage.

Product availability for July remained at levels last seen in 2013 as rates briefly broke above the 7% mark during the month, the Mortgage Bankers Association said.

Under settlements with the SEC, Wells Fargo and BNP Paribas will pay millions of dollars in penalties for employees using unofficial communications like WhatsApp. In all 11 firms agreed to pay penalties, while the CFTC took separate actions.