The White House has tapped former Federal Deposit Insurance Corp. Director Jonathan McKernan to lead the Consumer Financial Protection Bureau and attorney Jonathan Gould to lead the Office of the Comptroller of the Currency late Tuesday.

The latest refinance surge helped lift total application activity up for a second straight week, even as purchases fell, the Mortgage Bankers Association said.

The company more than doubled results over comparable periods and exceeded estimates due to stronger economies of scale and valuation adjustments in its favor.

The Federal Reserve is set to refrain from cutting interest rates for “quite a while,” following a hotter-than-expected inflation report, according to Mohamed El-Erian.

CPI Came in HOT and Bonds Reacted Logically

There’s remarkably little else to observe beyond this morning’s initial commentary.  Bonds did exactly what we would have expected based on the sharply higher inflation reading with 10yr yields popping about 10bps higher and MBS shedding 3/8ths of a point, if there’s any new news, it’s simply that bonds managed to avoid any major additional selling pressure after the initial push in the first 2 hours of trading. Yields are closing out the day right in line with the levels seen 10 minutes after CPI came out.

Econ Data / Events

Core Monthly CPI

0.4 vs 0.3 f’cast, 0.2 prev
unrounded, 0.446

Core annual CPI

3.3 vs 3.1 f’cast, 3.2 prev

Market Movement Recap

08:38 AM Obliterated after CPI.  MBS down almost half a point and 10yr up 11bps at 4.639

01:05 PM modest recovery heading into 10yr auction, but losing some ground afterward.  10yr up 11.1bps at 4.638.  MBS down just over 3/8ths. 

02:52 PM Still relatively flat after initial selling.  10yr up 10.7bps at 4.635.  MBS down just over 3/8ths

Today’s mortgage rate movement is very straightforward.  Unfortunately, it’s also marked by a straight line toward higher levels–in this case, the highest since January 14th. Incidentally, January 14th was the day before the last instance of the Consumer Price Index (CPI), the same inflation report that caused rates to surge higher today.  Back in January, inflation was a bit better than the market was expecting.  Today, it was much worse (i.e. “higher”). Rates are based on bonds, and inflation is an arch enemy of the bond market. To understand this, consider the fact that bonds are “fixed income” investments in that they pay out on a fixed schedule that is determined at origination.  An investor buying a mortgage at any given interest rate is doing to get the same number of dollars in interest regardless of inflation.   In a hypothetical scenario on an extremely small scale, imagine the investor earns 3 dollars this month–enough to buy 12 eggs back in the olden times.  Fast forward to the present and the investor still earns 3 dollars, but inflation means they’ll have to settle for half as many eggs.   In response to the inflation impact, investors effectively require higher interest payments before deciding to invest in fixed income debt like the mortgage market. The average lender moved up by nearly an eighth of a percent, which is actually not as bad as it could have been, all things considered. 

We know that bonds take a majority of their economic data cues from two reports: NFP and CPI. We knew that today’s CPI was critically important in commenting on the potential “pause” of inflation’s descent back toward target levels. We also suspected, for a variety of reasons, that CPI could be an even bigger market mover than the jobs report. Unfortunately, it was.
Economists expected month over month core inflation to come in at 0.3%.  As it happened, it nearly came in at 0.5% (the unrounded number was 0.446%).  Used autos, housing, and medical services all played large roles in the surprise. The results keep the annual rate of change stalled out above 3%.

The bond market response was obvious, to say the least. 

Lastly, on the topic of CPI vs the jobs report, the torch has indeed been passed, although either report could cause a bigger reaction than the other if it were far enough from forecast.  That just happened to be CPI this time.

With the whirlwind of Trump Administration news (Jonathan McKernan to lead the CFPB, playing hardball in Gaza, ending penny production, pardoning former Illinois Gov. Rod Blagojevich, freeing Mark Fogel, firing the head of government ethics, beginning the gargantuan task of cutting government spending, trying to rename of the Gulf of Mexico, ramping up deportations, to name a few), it is good to keep an eye on residential lending. I received this note. “Rob, stick to mortgages and keep politics and regulatory changes out of your Commentary.” Unfortunately, they are all intertwined, and lenders are keenly aware of what helps or hurts borrowers. (The MBA has assured us that the CFPB’s APOR will be released Thursday.) For example, the new HUD Secretary Scott Turner says he plans to quickly launch a review to root out inefficiencies at the agency, and that Fannie & Freddie privatization, cost-cutting, and a new name are his priorities. For lenders, especially independent mortgage bankers attending the TMBA conference, current topics include the Community Reinvestment Act for IMBs, restrictions on foreign ownership of U.S. soil, state adoption of the CSBS model capital, liquidity, and governance framework, and watching to see how the state by state impact of the NAR settlement plays out. (Today’s podcast can be found here and this week’s is sponsored by CoreLogic. Originators who leverage their Marketing Solutions as part of their customer retention practices have seen their pipelines increase by up to 4 times when compared to traditional lead generation methods. Hear an interview with Mortgage Advisory Partners’ Brian Hale on the recapitalization of Fannie and Freddie.)

Plaintiffs alleging the lender manipulated home valuations ten years prior argued the interpretation of the rule cited in determining the case’s standing was a stretch.

The MBA disclosed the year-end rankings of income-producing mortgage servicers at its yearly conference for this part of the industry.