UMBS up 5 bps on the day

Treasuries were mostly sideways in the overnight session which isn’t too surprising given last week’s sell-off and the looming CPI data tomorrow.

The week ahead will have some important data on housing and inflation, with the Consumer Price Index on Tuesday, and the Producer Price Index on Thursday. We will also get housing starts and builder sentiment. Other important data points are retail sales, small business optimism and leading economic indicators.

Loan demand is falling, while lending standards are getting tighter, according to the Fed. This is typical for an economy that is poised to enter a recession. Loan demand for residential real estate was weak, and standards tightened for HELOCs, credit cards, auto loans and other consumer debt.

The Fed also observed the same phenomenon for commercial and industrial loans, as well as commercial real estate.

The Atlanta Fed GDP Now Index sees 2.1% GDP growth in Q1, while the Street sees it coming in mildly

Reprice risk today is moderate, there isn’t any data to worry about but we could see moves ahead of tomorrow’s CPI inflation data. Remember that tomorrow’s data could push rates either way, but won’t drive us back to the lows we hit earlier this month. Tomorrow’s CPI data is at 8:30am ET, so it will affect rate sheets before you have a chance to lock, so if you’re not comfortable with the risk then you want to lock whatever loans today ahead of the data.

Mr. Cooper is buying Roosevelt Management Company in a deal that will bring them an asset management company/platform that will allow them to raise capital from institutional investors. Speaking of Mr. Cooper, they see $1.5T in MSR opportunity in 2023. They continue to be strategic in their acquisitions of MSR assets and, with a strong capital base, they can take advantage of the opportunities created by others needing to sell.


Via Shakespeare’s Julius Caesar

Tuesday – February 14, 2023

UMBS down 9 bps net on the open

10yr yields were slightly lower on the day and initially reversed higher due to the modest upward revision to last month’s core (0.4 vs 0.3 prev).

With the CPI numbers being as mixed as they were and with the sheer volume of trading that was waiting to take place in its wake, it’s no surprise to see some 2-way volatility as the morning progresses. Now it’s back into the red

m/m Core CPI = 0.4 vs 0.4 f’cast [0.4 prev]

y/y Core CPI = 5.6 vs 5.5 f’cast [5.7 prev]

The consumer price index rose 0.5% MOM in January, breaking a streak of lower monthly numbers. Excluding food and energy the CPI rose 0.4%. Inflation rose 6.4% on an annual basis. Shelter was the biggest addition to inflation, and that will fade as we get into summer where home prices peaked last year.

Federal Reserve officials said interest rates may need to move to a higher level than anticipated to ensure inflation continues to fall, after fresh data showed

prices rose at a brisk pace last month.

Richmond Fed President Thomas Barkin, speaking in a Bloomberg TV interview Tuesday, said that “if inflation persists at levels well above our target, maybe we’ll have to do more.”

Dallas Fed President Lorie Logan said: “We must remain prepared to continue rate increases for a longer period than previously anticipated, if such a path is necessary to respond

to changes in the economic outlook or to offset any undesired easing in conditions.”

It will take one of two things for the current rising rate trend to run its course.  Either the economic data needs to shift in a compelling way or the selling needs to take rates back up to 2022’s highest rates at which point markets will conclude a compelling economic shift is imminent.  Neither option is “fun” for the mortgage/housing market.  Today’s CPI wasn’t as much of a barn burner as the jobs report 2 weeks ago, but it was high enough to prove the Fed’s persistent point regarding stubbornly elevated inflation.

Black Knight is close to selling its Empower LOS is order to gain antitrust approval to merge with Intercontinental Exchange. The antitrust regulators were almost certain to prohibit Encompass and Empower from being under the same roof. Encompass and Empower are the #1 and #2 loan origination systems in what is a pretty concentrated industry. No mention of who would be the buyer.


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