The second quarter for the subsidiary of Waterstone Financial posted its highest net income since the same period in 2022, while its volume was the most in seven quarters.

First Foundation in Dallas recently got a $228 million capital injection led by Fortress Investment Group. Now it’s announced plans to pivot away from its heavy focus on multifamily loans, which lost value as interest rates rose.

While the federal banking agencies are not changing any current rules, they issued a joint statement Thursday cautioning banks about risks in third-party deposit partnerships. They are also seeking public input on bank-fintech partnerships more generally.

Despite being a top concern for a wide swath of voters, housing affordability has largely been absent from presidential politics.

As the vice president gathers support from the Democratic party in hopes of securing the nomination, attention has turned to her policies, some of which aim to boost affordable supply.

Straightforward Gains After Important Inflation Data

While today’s monthly core PCE headline may have technically been higher than the median forecast, a vast majority of forecasters abstained from submitting updated guesses to data aggregators after yesterday’s quarterly PCE data.  Had they been compelled to do so, the forecast would almost certainly have risen to 0.2 from 0.1 and today’s unrounded number of 0.182 would be the logical beat that the market traded… logically.  In fact, one might call the 2 day action “boring” considering this morning’s quick PCE-driven rally almost perfectly offset yesterday’s PCE-driven sell-off and neither was very big in the bigger picture.  

Econ Data / Events

Core M/M PCE

0.2 vs 0.1 f’cast, 0.1 prev
(unrounded = 0.182%)

Core Y/Y PCE

2.6 vs 2.5 f’cast, 2.6 prev

Incomes

0.2 vs 0.4 f’cast, 0.4 prev

Outlays

0.3 vs 0.3 f’cast, 0.4 prev

Consumer Sentiment

66.4 vs 66.0 f’cast, 68.2 prev

Market Movement Recap

08:40 AM 10s are down 2.6bps at 4.218 and MBS are up 2 ticks (.06).

12:11 PM Mostly sideways after initial rally.  MBS up 6 ticks (.19) and 10yr down 3.7bps at 4.207

02:28 PM Flat at same strong levels.  MBS up 7 ticks (.22) and 10yr down 4.3bps at 4.201.

05:50 PM 10yr out the door down 4.7bps at 4.196 and MBS ended up just over a quarter point.

The only thing constant is change. After 53 years, Southwest Airlines is ending its 100 percent open seating policy! (I don’t mind lining up.) People and companies have to adjust… Time waits for no one. What were concerts like in 1964, 60 years ago? Here’s an interesting chart that shows where the U.S. Government pegged interest rates through history, including 1964. (In the 4’s.) While we’re on interest rates, many clamor for lower rates, whether that means 6 or 5 or 4 percent is unclear. There’s a lot of talk about the Federal Reserve’s Open Market Committee lowering the fed funds target rates in September when the Fed meets. But lenders know that an interest rate cut might not translate into immediately lower mortgage rates. Ask your capital markets staff: The bond market is already pricing in rate cuts, so the simple act of the Fed cutting is not necessarily going to have a direct impact on mortgage rates. (Today’s podcast is found here and this week’s is sponsored by LoanCare, known for delivering superior customer experience as a mortgage subservicer through personalization and convenience, and supporting MSR investors with a focus on customer engagement, liquidity, and credit risk. Hear an interview with NJ Lenders’ Steve Grossman on coaching his sales staff to get the best out of them.) Lender and Broker Software, Products, and Services Deephaven Mortgage is excited to announce that it is hosting its own non-QM event, Non-QM Power Pulse, along with Anchor Loans on September 18th 8:30 am to 12:30 pm in Hollywood Beach, Florida! Deephaven is committed to support, educate and deliver resources to the entire real estate community. Chief Sales Officer at Deephaven Tom Davis, Managing Director of National Accounts at Deephaven Tyler Bohn and VP of Business Development at Anchor Loans Dave Gray join other industry experts to deliver educational panels focused on helping you increase your volume. In one day, you will gain the power to: Stay ahead of the competition, increase your volume and referral base, network with top Realtors, investors, and loan originators! You will also learn how to promote Ground Up Construction and Fix and Flip programs to investors. Register now and join us so that you can offer a full suite of investor loans for your clients to build their portfolios and differentiate yourself in the market. Register Now!

This week’s most important economic data was the PCE price index which is the gold standard of big picture inflation measurement. For those hoping to see rates drop, it was important for PCE to confirm the progress seen in the CPI data (the other major inflation index that came out 2 weeks ago).   Spoiler alert: PCE confirmed the progress, but there are a few nuances. Perhaps most importantly, this week’s PCE data covers the same time frame as the CPI data two weeks ago.  In other words, it’s not quite as awesome as 2 consecutive months of “mission accomplished” levels of inflation (which has now arguably been cemented for June), but it’s nonetheless an important milestone in the path toward rate cuts. What exactly does “mission accomplished” mean?  This simply refers to Fed’s 2% annual inflation target, typically tracked via Core PCE which excludes more volatile food and energy prices.  In order to hit 2%, monthly inflation readings need to average roughly .17%.  This time around, it was .182%–definitely in the historical range of on-target inflation from before the pandemic. While the chart above makes it look like victory has been achieved, the inflation target is technically an annual thing, so we need to see more months in the target zone before the year over year number falls into line. Even then, the Fed has clearly stated that the annual change doesn’t need to hit 2% as long as they’re confident that it will.  Prior to this week’s data, the average Fed member has expressed an increasing amount of said confidence.  It’s not thought to be enough for a rate cut at next week’s Fed meeting, but it’s widely believed to result in a September rate cut, as long as the data doesn’t do anything crazy between now and then.

After yesterday’s quarter over quarter core PCE price index came in 0.2% higher than expected, we knew today’s monthly PCE data would have to include higher numbers divided across the months of April, May, and June in some unknown proportion.  If April and May were not revised, it suggested an unrounded monthly core PCE of 0.37 today, which would have rounded to a 0.4% headline versus the 0.1% forecast.  But that would be very uncommon, so markets split the difference and figured the extra inflation would be spread more evenly across the quarter.  Forecasters who updated their predictions changed to 0.2% for the m/m core number, and that’s exactly what we got.
The more we drill down, the better the news gets.  After all, 0.2 is a rounded number.  The unrounded version was 0.182… even better!  Perhaps just as important was the fact that the housing component of the PCE data fell to its lowest level since it was first on the way up in 2021.

The following heat map shows another way to visualize the progress:

The main takeaway is really the same in that it shows significant cooling in what has been the most problematic sector.  It also serves to remind us that there are months like January that will continue to distort 6 month and 1 year metrics.  
Bottom line to all this: the market knew the previous 0.1% forecast for today’s core PCE was a long shot after yesterday.  That’s why we sold off yesterday instead of today.  Now that today’s PCE came out with what was probably the softest possible realization of yesterday’s warning, bonds are breathing a small sigh of relief, moving to the stronger end of this week’s range.

A group of 14 state attorneys general, led by Tennessee, joined the chorus of opposition to the Fannie Mae pilot to not require title insurance on certain refinances