The bank’s allowance for losses on commercial real estate loans jumped to $3.6 billion in the second quarter — up 64% from a year earlier. The negative forecast could portend trouble for smaller banks that have bigger exposure to the office sector.

And it is quite likely that the lower gain on sale seen in initial Q2 bank earnings reports will read through to the large nonbank lenders, Keefe, Bruyette & Woods said.

Good Times Still Mostly Rolling Despite Token Correction on Friday

Bonds sold off on Friday, with the easiest scapegoat being the extra strong Consumer Sentiment number (72.6 vs 65.5 f’cast). 10yr yields remained below yesterday’s highs, and although MBS prices were lower than yesterday’s, they’d outperformed Treasuries earlier in the week.  In short, most of the week’s gains remain intact.  In fact, considering it was a summertime Friday with super strong data after 4 straight days of gains that took bonds into overbought territory in the short term, one might consider a 6bp bump to 10yr yields and a 3/8ths of a point loss in MBS to be a victory, of sorts.

Econ Data / Events

Consumer Sentiment 

72.6 vs65.5 f’cast, 64.4 prev

Sentiment, Current Situation

77.5 vs 70.4 f’cast, 69.0 prev

Inflation expectations

1yr – 3.4 vs 3.3 f’cast
5yr – 3.1 vs 3.1 f’cast

Market Movement Recap

10:05 AM Modestly weaker all morning with sharper selling after sentiment data.  MBS down 3/8ths and 10yr up roughly 4bps.

01:02 PM Additional weakness into the PM hours, but stabilizing now and recovering.  10yr at 3.81.  MBS down only a quarter.

04:05 PM Weakest levels of the day in 10s (up 6 bps at 3.827) and down 3/8ths in MBS (not quite weakest levels of the day). 

Bonds rallied fairly hard during the first four days of the week, entirely restoring the ground lost in the previous week.  Yesterday afternoon, we discussed the short-term technical considerations surrounding that move and concluded some resistance would be unsurprising.  With that in mind, the resistance is here, but a quick glance at the longer term chart frames it as uneventful.  It should not be unsettling.  In fact, bonds are arguably settling back into the previous range after a brief, panicked foray up and over 4%.

Mortgage rates spiked abruptly last week after several economic reports showed the economy doing better than expected. Now this week, key inflation data showed prices falling faster than expected. Rates responded with a full recovery despite giving up some of the improvement on Friday after strong Consumer Sentiment data. If rates could only choose one thing to be afraid of, it would be inflation.  Rates are based on bonds.  Bonds offer investors a fixed schedule of cash flow.  Over time, inflation can make that cash buy much less “stuff” than it did at first.  Investors compensate by demanding higher rates of return, and that is essentially the short version of the great post-covid rate spike. Up until this week, the most closely-watched inflation metric had been consolidating in an increasingly narrow, sideways pattern, but still at elevated levels.  While it’s only one month of data, this is the promising breakout that fans of low rates have been hoping to see.  In one fell swoop, the monthly pace of inflation is back at the lowest levels since early 2021. Year-over-year inflation is also looking good, especially when energy and food prices are factored into the mix (blue line below): The chart above illustrates the predicament for policymakers.  The Fed sets short term rates in an attempt to constrain the economy and push inflation back to an annual pace of 2%.  They focus on core inflation (orange line).  As seen in the chart, we’re still quite a ways from 2%, and it will take another year of reports like the one we just saw before we’re back in that range.  So the Fed has to decide if the current level of the Fed Funds Rate is enough to get us there with certainty.

“If they raise the interest rates one more time, you’re going to hear Janet Yellen.” Much of the talk in the hallways here at the California Association of Mortgage Professionals event near San Francisco revolves around the Federal Reserve likely raising short term rates on July 26th due to the need to raise interest rates further to bring down inflation that is still too high. But the end to its current monetary policy tightening cycle is close. Compliance may be the new focus. “Tawny Johnson gave me the best mortgage I’ve ever had!” We’ve all seen reviews like that and wondered about them. Anyone who repeats reviews should know that the FTC announced its Endorsement Guides, which provide guidance to businesses to ensure that advertising using reviews or endorsements is truthful and complies with the FTC Act, have been revised. In other Federal Trade Commission news, it has opened an investigation into ChatGPT, released by Open AI which is backed by Microsoft, over the technology’s potential harm, possible false information, and security practices. (Today’s podcast can be found here and this week’s is sponsored by SimpleNexus, the homeownership platform that unites the people, systems, and stages of the mortgage process into one seamless, end-to-end solution that spans engagement, origination, closing, incentive compensation, and business intelligence. Interview with Speech-Language Pathologist Ailsa Falck on how Robbie can improve the auditory experience for his podcast listeners.)

The chattel financing firm’s cash infusion is in addition to a $15.5 million venture round in 2022 and a Series A earlier this year.

The implementation plan the Biden administration released on Thursday seeks to shift liability for data breaches onto “the biggest, most capable” entities. Does that mean banks?

Delinquencies are balanced by low loan-to-value ratios, which could result in more favorable recoveries in the event of defaults.

The interactive tool can answer consumer questions about the mortgage process, explain the difference between products and give an approximate quote.