The Dow Jones Industrial Average dropped over 2,200 on Friday, the second day of a sell-off due to tariffs, but that could be good for mortgage rates.

The central bank wants to let Trump’s policies play out across the economy before deciding which way to move interest rates, and it’s too soon to know what the impacts will be, the Federal Reserve chair said.

Republican lawmakers, mulling a new partial claim proposal, slammed the expiring program that has purchased thousands of mortgages as Biden-era overreach.

The FBI intervened in the incident, which a lawyer for the company’s CEO said was a response to another man’s actions.

The Department of Justice said in a court filing Friday that a February stop-work order from acting Consumer Financial Protection Bureau Director Russell Vought did not entail stopping statutorily mandated work by the bureau, defying earlier testimony.

Ahead of next week’s MBA Advocacy event in Washington DC, I received this note from an industry vet. “With the continued consolidation into the large non-banks, are you hearing any rumbling about the level of risk building in these less regulated and less capital-intensive entities? If we are likely to face a recession, with rising delinquencies but rising refinances due to lower rates, are we ready for that as an industry? For the most part big banks have reduced their servicing portfolio size, but is the Trump Administration looking to weaken regulation right into a potential crisis?” Good questions for next week in DC. The headlines are certainly dominated by tariff policy, which, along with the impact of tariffs, is out of the hands of the Federal Reserve. Tariffs may, over the long term, help the trade numbers, but what about our budget? U.S. Treasury Secretary Scott Bessent has warned that the federal government could reach the debt ceiling as soon as May or June, in line with the Congressional Budget Office’s estimate that the Treasury may exhaust its accounting measures by August or September. So, lenders can keep an eye on the impact of that on interest rates and demand for our securities. (Today’s podcast can be found here and this week’s is sponsored by Calque. Calque provides a binding backup offer on your borrower’s departing residence to clear the existing mortgage balance and closing costs in 48 business hours or less. Today’s features an interview with NAF’s Miguel Villegas on how cash borrowers are driving bidding conditions for various metros around the nation.)

The Mortgage Bankers Association (MBA) released the latest mortgage application data this week showing a modest 1.6% decrease from the previous week.  A slight uptick in purchase applications was more than offset by a downtick in refi applications, but both remain in solid territory relative to the prevailing range and interest rate environments. Purchase demand is doing especially well in the recent context.  This week’s improvement makes it one of the best 6 weeks in more than a year. The most optimistic way to approach these numbers would be to say that purchase demand looks to have bottomed out in the bigger picture and is now waiting for motivation to bounce back.  When that happens, no one is under much of an illusion that volume would go back to the highs from a few years ago, but even recapturing a fraction of that range would make for a meaningfully more active housing market. Refinance demand, as always, is very closely tied to interest rate volatility. Last week’s rates moved higher and were near the highest levels in more than a month at one point.  As such, it’s no surprise to see a bit of a slide in the refi index. If anything, it’s refreshing to see how resilient the numbers have been. While we are no great fans of predicting the future, there’s a strong possibility that next week’s refi numbers will be noticeably higher.  That’s not hard to imagine given that rates fell to the lowest levels since October by the end of the week. 

This week is ending with the average top tier 30yr fixed mortgage rate at its lowest level since early October, 2024. The only way to be disappointed about that would be to focus on the fact that rates were even lower this morning. Rates fell sharply due to the market’s ongoing reaction to Wednesday’s tariff announcement and especially due to China’s announcement of retaliatory tariffs overnight.  Bonds (which dictate rates) were at their strongest levels right at the start of domestic trading, but progressively erased gains.  Why? There are several ways to make a case for Friday’s rate reversal. These include but are not limited to 3 key events:
A reasonably strong jobs report
News that Vietnam would lower tariffs on the U.S. (which acted as a proof of concept suggesting tariffs could end up being less onerous than feared)
Fed Chair Powell expressing renewed concern over the inflationary impact of tariffs as opposed to offering any indication that the Fed would be eager to cut rates in response to economic turmoil
In addition to those actual nuts and bolts, one could also consider that rates quite simply covered a ton of ground this week, relative to their recent tendencies, and it’s not unheard of for traders to circle the wagons on a Friday afternoon (i.e. to push back slightly on the prevailing momentum). Again, the average rate is still as low as it’s been since October. If there’s anything to be less than enthusiastic about, it’s the fact that the nature of this motivation means that volatility remains a distinct risk, for better or worse.

Wild Round Trip Leaves MBS Weaker Despite Huge Initial Rally

MBS ended Friday right about where they ended Thursday, and if that’s all you got to know about the future on Thursday afternoon, it would have been good news. But as it stands, it could be a bit frustrating considering it means about 3/8ths of a point of weakness from AM levels. Moreover, there was no glaringly obvious motivation for the reversal, nor was there a similar reversal in equities. That leaves us to consider factors like traders moving to sidelines heading into the weekend and mid day headlines regarding Vietnam lowering tariffs on the U.S. (a proof of concept for de-escalation of trade war themes). MBS underperformance can be seen as a combination of Treasuries being the preferred safe haven for flights to safety, and also the only beneficiary of the Fed’s QT tapering plans. Today’s video dives deeper into these considerations, but the takeaway is that the week was a win overall, and that anything can change quickly when the market is taking cues from tariff-driven economic speculation.

Econ Data / Events

Jobless Claims

219k vs 225k f’cast, 225k prev

Continued Claims

1.903m vs 1.860m f’cast, 1.847m prev

ISM Services

50.8 vs 53.0 f’cast, 53.5 prev

ISM Employment

46.2 vs 53.9 prev

ISM Prices

60.9 vs 62.6 prev

Market Movement Recap

08:26 AM Sharply stronger overnight.  MBS up 3/8ths and 10yr down 13.5bps at 3.895

09:10 AM Losing some more ground now.  MBS up only a quarter point and 10yr down 9.9bps at 3.93 (up from lows of 3.87)

01:46 PM weakest levels for Treasuries with 10s down only 5.2bps at 3.977.  MBS at the weakest liquid levels of the day, still up roughly an eighth of a point, but down a quarter from highs. 

04:40 PM Gains completely erased.  MBS down 1 tick (0.03). 10yr still slightly stronger, at 3.996, but well off the lows.

Despite today being “jobs report Friday,” and despite the jobs report perennially having the power to cause big volatility for financial markets, overnight developments proved to be far more consequential.  Specifically, China’s announcement of retaliatory tariffs send stocks and bond yields into a swan dive at 6am ET.  The stronger jobs report ended up having very little impact by comparison.  Even now, trade headlines regarding Trump’s call with Vietnam are doing more to move markets than econ data. Bonds are still stronger, but not as strong as they were in the early morning hours. 

Despite the push-back.  Bigger picture still looks good.