Getting settlement agents and other stakeholders involved was a challenge, but e-note use has finally become routine for some mortgage lenders buying loans.

Two days ago, mortgage rates began the day at 7.04% before mid-day improvements brought the average back down to 6.99%.  Today started out in a similar vein with the average lender at 7.05%, but the mid-day movement only made things worse. In terms of catalyst events, the bond market (and stock market, for that matter) swooned after a scheduled auction of 20yr Treasury bonds. The auction results were weaker than expected, signaling lower-than-expected demand. When demand is lower for Treasuries, it puts upward pressure on bond yields (aka “rates”). Notably, the 20yr auction results were hitting at the same time that some updates were coming out regarding the budget debate in congress.  In general, the bond market has not been enthusiastic about how that process has evolved. Bonds were hoping for a tighter leash on spending because lower spending implies lower bond issuance–something that would help rates move lower, all other things being equal. At this point, all potential iterations of the spending bill involve more spending than bonds wanted. The 20yr auction isn’t all that important in the bigger picture, but it was latched onto as evidence of bigger underlying structural concerns. All that to say: bonds were weak in the morning and even weaker in the afternoon.  When bonds move enough during the day, mortgage lenders can adjust their rates for the day.  Most lenders did so. By the end of the day, this brought the average up to 7.08%–the highest closing level in just over 3 months. 

Treasury Auction Blamed as Bond Vigilantes’ Smoking Gun

Vigilante justice!  Taking matters into one’s own hands!  It’s a sensational concept when applied to the bond market, but the term hasn’t really done us many favors over the years.  It happened to work for a headline today because the term is as over-the-top as the notion that today’s 20yr auction was some magical “ah ha” moment leading to a massive reprimand of congressional budget negotiations in both stocks and bonds. In actuality, the auction was fairly average–certainly nothing that warranted the stock/bond swoon, but if markets were looking for an excuse to sell (a smoking gun?), it was one of the only options. 

Market Movement Recap

09:21 AM weaker overnight amid ongoing budget battle. MBS down just over a quarter point and 10yr up 5.3bps at 4.541

01:04 PM A bit weaker after 20yr auction.  10yr up 6.5bps at 4.553 and MBS down nearly 3/8ths.

02:37 PM Additional selling in both stocks and bonds.  MBS down half a point and 10yr up 9.4bps at 4.582.  Weakness looks to have stabilized for now though.

We’re now into the 3rd day of a week that’s conspicuously lacking in relevant econ data. In addition, the looming holiday weekend hinders participation and increases potential volatility. That means an extra level of impact for whatever bonds can find to move the needle. So far, all they’ve been finding is a feeling of disillusionment with the fiscal outlook as they watch congress debate spending more money on one thing vs spending more money on another thing.  Insultingly, those things are in the spotlight more for political strategy reasons than for their central role in our current fiscal spiral. So not only are we not addressing the spiral with any of the available options, we’re also highlighting the worst features of our legislative process.
While all of the above has bonds under pressure overnight, it’s worth noting that yields continue to operate in the same short-term range since the beginning of last week. That range was entered due to the US/China tariff pause.  Fiscal disillusionment is merely the factor pushing yields toward the top of that range.

As nearly a thousand capital markets staff, managers, and vendors head home from Manhattan, united in trying to help borrowers, in a reflection of the times, it’s interesting how divisive the times are given the phone call this week between Vladimir Putin and Donald Trump. Fox News noted, “Trump Confident Putin Wants Peace” versus nearly every other publication who wrote things like “Trump Hands Putin Win.” I mention this as it relates to the economy and mortgage rates, are there two ways to look at a rating cut? No one disagrees with the fact that the United States no longer holds a perfect credit rating with any of the three major agencies. Now we’re “behind” countries like Canada (51st state?), Australia, Denmark (owner of Greenland), Germany, even Liechtenstein. Does anyone care? Lenders will certainly care if it impacts U.S Treasury rates as the risk on these securities is a notch higher, which in turn impact mortgage rates (which are usually priced as a spread to Treasuries) and in turn impact borrowers. To put a positive spin on this, if there is one, the rating agency change was expected and already in the market. Nonetheless, if the Administration continues to move the dollar away from being the world’s reserve currency, we can expect more worldwide consequences, and perhaps not in favor of our borrowers. (Today’s podcast can be found here and this week’s is sponsored by Xactus and its commitment to the continued transformation of the mortgage verification industry. Pioneering a new class of technology, “Intelligent Verification,” Xactus is redefining how the industry originates and services mortgages. Today’s has an interview with Optimal Blue’s Mike Vough on ways technology is advancing the pricing and hedging space, specifically the granularity of pricing and timing of transactions, as well as how it can help companies save money from the beginning of the origination process.)

In remarks at a Mortgage Bankers Association conference, the trade group’s CEO also acknowledged the need for some guardrails to remain in place.

Starting with the client for life concept, executives from Rocket and CMG Financial described what is happening at their nonbanks to achieve future success.

An explicit guarantee for Fannie Mae and Freddie Mac could cause the risk weighting of agency MBS to decline, in turn freeing up banks’ balance sheets.

The size of typical bulk MSR deals trading has shrunk, according to panelists at the Mortgage Bankers Association’s Secondary and Capital Markets Conference.

Discrepancies between servicer and investor systems have been rare recently but the dollar amounts involved magnify the impact, according to PMSI’s CEO.