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.)

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. 

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.

Joseph Otting, who is leading Flagstar’s turnaround, said potential buyers may be interested in acquiring the regional bank once it gets past certain challenges.

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

Lenders increased offerings in jumbo and non-QM segments as the industry focuses on customers with strong credit, the Mortgage Bankers Association said.

Neo Home Loans, the business at the center of the trade secrets suit, has always maintained its independence in its lender partnerships, its co-creator claims.

What to Expect From Wednesday’s Inflation Data

Bonds lost ground overnight in sympathy with European bonds. The domestic session was almost perfectly flat and entirely uneventful. Powell’s testimony was a complete non-event with no new concepts for anyone who’s tuned in to the past few appearances. Wednesday brings the critical CPI data. There’s plenty of anxiety over this one as early year inflation data is notoriously more difficult to forecast. That said, forecasts always do a perfect job of accounting for changes in annual CPI that result from older data falling out of the calculation (because that’s just simple math, after all). In addition to forecasting difficulty, markets are also eager for clarity on whether inflation continues stalling at prevailing levels or begins to make renewed progress toward the 2% target. Needle-threading is always possible, but any major indication in one direction or the other will likely give rates a big push in the logical direction.

Market Movement Recap

11:34 AM Weaker overnight and mostly flat through Powell testimony.  MBS down a quarter point and 10yr up 3.7bps at 4.531

01:23 PM No reaction to 3yr auction and little-changed from last update.  MBS down just over a quarter point and 10yr up 4.1bps at 4.534

03:04 PM Modest attempt to rally into 2pm, but back to same levels now.  MBS down a quarter point and 10yr up 4.4bps at 4.537

With Tokyo closed for a holiday, overnight Treasury trading was limited to futures markets until 2am ET.  Yields opened about 1bp higher in Europe and then drifted gradually higher into the US session.  Bearish impulses came primarily from European bond market weakness amid a glut of EU sovereign debt auctions. At home, the path of least resistance has been to follow the selling trend ahead of 3 days of US Treasury auction supply, Powell’s congressional testimony (today and tomorrow), and tomorrow’s fairly critical CPI data. Losses are moderate with 10yr yields up only 3.6bps, right back to the “just over 4.50%” levels seen from Jan 27 through last Tuesday. 

Hah! Just kidding… But did you think, “Oh no!” or “Yippee!” when you saw that subject line? The ups and downs of the Consumer Finance Protection Bureau, an agency that touches mortgage debt, credit cards, credit bureaus, and cash substitutes, is all the talk at the TMBA in Houston. One industry vet wrote me saying, “As much as we all complain about regulation through enforcement, at least there was an ‘adult in the room’ telling us to eat our vegetables. As a colleague of mine said, ‘I have seen this movie before, the popcorn is great but the ending sucks.’” Today at noon, PT, 3PM ET, Capital Markets Wrap, presented by Polly, will be covering the turmoil at the CFPB, the impact on TRID/ATR enforcement, tariffs and inflation, and the misconception that regulations will disappear without legislative change. Don’t forget that OMB Director Russell Vought was hit with two union lawsuits after he issued directives freezing much of the CFPB work and work tasks. Is reading attorney Brian Levy’s Mortgage Musings a work task? Folks at the CFPB have to figure that out, but others can decide for themselves whether to read Levy’s latest about the CFPB shutdown. (Click here to view prior editions and to subscribe for free.) But wait… there’s more! A U.S. judge on Monday ordered the Trump administration to fully comply with a previous order lifting its broad freeze on federal spending: another court order. (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 Logan Finance’s Nick Pabarcus on the 2025 outlook for non-QM, how those loans are priced, how the anticipated rate environment will impact non-QM business, and the future of Non-QM products.)