As steep tariffs on Canadian goods took effect this week, banks on both sides of the border expressed concern about the economic fallout and the uncertainty their customers face.

Buyers face decreased return on investment as home prices and rates remained at challenging levels while economic uncertainty clouded the outlook, Redfin said.

The megalender revealed it employed 14,200 team members at the year’s end.

Many layoffs so far have been in the Small Business/Self-Employed Division, but the Large Business & International Division has also been affected.

2nd Straight Day of Losses. Blame Data or Stocks?

We already saw the end of the bond market’s 9 day winning streak with yesterday’s big mid-day reversal. Today makes it extra official with modestly weaker close.  That may not have been our destiny.  In fact, at 9:59AM ET, it looked like yields were happy to push back toward Tuesday’s lows, but things changed after the 10am ISM data. While it’s clear that ISM sent yields quickly higher, the rest of the day’s trading is a matter of debate or perspective. The key question is whether bonds would have lost as much ground as they did had it not been for a stock market recovery. Probably not, but the additional weakness attributable to stocks/sentiment was fairly small. Bottom line: for now, data still deserves more of the blame.

Econ Data / Events

ADP Employment

77k vs 140k f’cast, 186k prev

ISM Services

53.5 vs 52.6 f’cast, 52.8 prev
prices 62.6 vs 60.0
employment 53.9 vs 52.3

Market Movement Recap

08:51 AM Sideways to slightly weaker overnight, but bouncing back after ADP data. MBS up just over an eighth and 10yr down 4.1bps at 4.203

11:32 AM Additional losses after ISM data, but holding ground now.  MBS still up 1 tick (.03) and 10yr down 1.3bps at 4.232

02:09 PM New lows with MBS down 3 ticks (.09) and 10yr up 3.6bps at 4.28

It’s been a great couple of weeks for mortgage rates, largely mirroring the terrible couple of weeks for the stock market. A combination of downbeat econ data and economic concerns helped push investors away from stocks and into bonds (mortgage rates are based on bonds where more demand means lower rates). There have been two notable attempts on the part of stocks to bounce back over these two weeks and today was one of them. Rates have been under pressure at the same time, but they’re not just thinking about stocks.   Rates/bonds prefer to take cues from economic data.  While today’s was mixed, the more meaningful of the two key reports was not rate-friendly.  Mortgage lenders began the day in decent shape but many were forced to adjust rates higher as bonds responded to the econ data. Fortunately, the damage is minimal for now, and the average 30yr fixed rate is still right in line with the best levels in 4 months, generally speaking. There will be more data with the power to send rates in either direction over the next 2 days.  As always, there’s no way to know ahead of time if the data will help or hurt. 

Wednesday marks the return of market-moving economic data after Tuesday’s lull.  ADP Employment was up first and it came out much weaker than expected. Bonds never like to read too much into ADP, but it definitely had a measurable impact. Then at 10am, ISM Services data had a bigger impact, but in the opposite direction (because it was stronger than expected).  It’s also not lost on market watchers that the Services PMI sent an entirely different message than Monday’s Manufacturing PMI. All told, bonds are just barely pushing into weaker territory heading into the PM hours.

Today involves a flight from Cancun to the West Coast. Maybe the news flow will cease for me in the six hours in the air, but the news flow impacting lenders, and government agencies involved with residential lending, continues. For example, the VA sent out a note about terminating 585 non-mission-critical or duplicative contracts. “These contracts represent less than one percent of the roughly 90,000 contracts VA currently has in place… The value of the contract cancellations totals about $1.8 billon. After accounting for the money already spent on the contracts, the cancellations will enable VA to redirect about $900 million back toward health care, benefits, and services for VA beneficiaries.” Elsewhere, the US Treasury Department has announced it will not enforce the Corporate Transparency Act, which requires businesses to disclose their beneficial owners. This decision comes after opposition from the Trump administration and legal challenges, citing concerns about the burden on low-risk entities. The Treasury plans to narrow the act’s scope to focus on foreign reporting companies. In compliance news, the image of Elon Musk with a chainsaw struck a nerve for attorney Brian Levy. In his latest Musings, Levy discusses what he sees happening at CFPB in light of current events and what may happen going forward. You can subscribe to get an email when Levy issues a new Musing for free! (Today’s podcast can be found here and sponsored by Floify. Floify is an easy-to-configure point-of-sale platform that allows each branch or loan officer to customize its look and feel to meet the needs of their lending team, homebuyers, and market. Hear an interview with BeSmartee’s Tim Nguyen on the impact of Trump’s second term on housing markets, the necessity of mobile mortgage solutions for lenders, and balancing automation and personal interaction in mortgage processes.)

The Trump administration could announce a pathway for tariff relief on Mexican and Canadian goods covered by North America’s free trade agreement as soon as tomorrow, Commerce Secretary Howard Lutnick said Tuesday.

The banking sector has stabilized significantly since the spring of 2023, but elevated interest rates have created lingering issues on bank balance sheets.