For all the time we spend pushing back on the notion that the Fed Funds Rate is a root cause for volatility in longer-term rates, that push-back always carries a notable caveat: Fed Funds Rate expectations definitely have a direct correlation with longer-term rates.
There are two reasons those expectations can change: markets are either assuming the change due to economic data or markets are reacting to a change in the Fed’s reaction function. Fed speeches and especially the quarterly dot plot (a summary of each Fed member’s base case rate expectations) account for changes in the reaction function.
This is why the dot plot can be such a big market mover.  It also causes volatility because the market spends 3 months trying to get inside the Fed’s head and the dots let the market know how good of a job they did. 
Bottom line: with a fairly big shift in labor market metrics over the past 3 months, Wednesday afternoon’s dot plot is this week’s focal point for potential volatility. 
Bonds are starting the week slightly stronger after holding fairly steady in the overnight session.

Federal Reserve Governor Lisa Cook described an Atlanta property at the center of a lawsuit over her attempted ouster as a “vacation home,” according to documents viewed by Bloomberg News.

The federal regulator terminated the wholesale lender’s FHA approvals in six jurisdictions because of certain elevated default and claim rate data.

Roof damage can reduce a property’s value and loan security. Lenders must know the warning signs that indicate major structural and financial risks.

Make the right lending decisions by being informed and knowledgeable on the impact of flooring during appraisals, upgrades, and resale evaluations.

Homes for sale inventory reached pre-COVID levels for the first time in years, while contract activity continued to soar last month, HouseCanary said.

The Mortgage Bankers Association leader cited past objections on anti-competitive grounds as Trump administration officials showed signs of progress on reform.

Incidental, Inconsequential Weakness Ahead of Fed Week

Bonds began the day in modestly weaker territory and yields are heading out right where they started.  In fact, yields are also right in line with the opening levels from Monday.  This broadly suggests the market got where it was going after the jobs report and is now waiting for the next big shoe to drop. The other way to view this entire week is as an opportunity to book profits and cover shorts on the recent “steepening” trade (which favored buying 2s over 10s). Indeed, 2yr yields mostly sold off this week relative to 10s and today was the only real exception. Either way, there was no concrete cause and effect in the news or econ calendar, so chalk it up to “position squaring ahead of next week’s Fed day.”

Econ Data / Events

Consumer Sentiment

55.4 vs 58.0 f’cast, 58.2 prev

1yr inflation expectations

unchanged

5yr inflation expectations

3.9 vs 3.5 previously

Market Movement Recap

10:41 AM moderately weaker overnight and holding mostly sideways so far. MBS roughly unchanged and 10yr up 3.8bps at 4.063

02:18 PM Holding sideways all day.  MBS up 1 tick (.03) and 10yr up 3.9bps at 4.065

03:41 PM Heading out with 10s up 3.3bps at 4.059 and MBS still up 1 tick (.03).

The underlying bond market (which dictates the rates offered by mortgage lenders) weakened moderately overnight.  Weaker bonds equate to higher rates, all else equal.   “Higher rates” is contrary to many media outlets’ coverage this week, but there’s an important reason. Most news organizations that cover mortgage rates rely on Freddie Mac’s weekly rate survey for their once-a-week update. Additionally, when Freddie’s rate raises/falls appreciably, it receives even more attention. This frequently creates problems due to the timing and methodology of Freddie’s survey. Specifically, the survey is an AVERAGE of the rates seen over the 5 days (Thu-Wed) leading up to Freddie’s Thursday release. As such, if rates happen to fall sharply on a Friday (as was the case last week), our DAILY rate tracking will reflect that on Friday while Freddie won’t catch up until the following Thursday (yesterday, in this case). By that time, rates hadn’t moved any lower, and now today, they’re actually a bit higher. All that to say, the rate drop you’re hearing about from Freddie is the same rate drop we told you about last Friday.  There’s been no meaningful improvement since then, and in fact, a modest increase in rates today. Today’s move in bonds/rates wasn’t driven by anything specific  and shifts of this size don’t demand concrete justification in underlying data or events. It could simply be the case that traders were closing out trading positions for the week and the modest uptick in yields/rates was the incidental result. 

“Rob, we’ve said ‘no’ to more expansion possibilities than ever before. Are you hearing other lenders doing deep dives on LOs and branches and also not seeing a profitable path?” Yes indeedy. Here in Jackson, MS, at the Mississippi Mortgage Banker’s Fall Conference, lenders are not only discussing expansion but also early payoff penalties and strategies to avoid them. (Of course, they are explaining to newer entrants why few investors would ever pay 102 or 104 for a loan that may pay off soon at 100.) One topic is why companies service, or sell service, and this month’s STRATMOR piece is titled, “Servicing: What’s All the Fuss About?” Another topic on lenders’ minds are demographics, income, and reasons for moving, and now we have government news that income inequality has dipped and fewer people moved, per the largest survey of U.S. life. Talk to any solid loan originator, and they’ll tell you that the top three attributes of their brethren are focus, leadership, and consistency. (Today’s podcast can be found here and this week’s are sponsored by Indecomm. Streamlining operations with the genius blend of automation, AI, and services. Achieve practical digital transformation and real operational impact with Indecomm’s purpose-built mortgage solutions. Hear an interview with Polunsky Beitel Green’s Peter Idziak on takeaways from the bipartisan Home Buyers Privacy Protection Act (trigger leads bill), which amends the Fair Credit Reporting Act by shifting trigger leads to an opt-in system, mandates a study on text-based solicitations, and raises concerns about its impact on credit bureau revenue and market competition.)