Stocks are higher this morning after good numbers out of Nvidia. Bonds and MBS are down small.
The Fed’s Jackson Hole Symposium begins today with Kevin Warsh slated to speak tomorrow. These meetings tend to have a lot of press questions which will be interesting given Warsh’s preference for cutting down on the communication. Treasury Secretary Scott Bessent’s version of Operation Twist (where Treasury is buying back longer-dated bonds to push down long-term rates) will almost certainly be asked and it is a delicate question for Warsh. Generally speaking the Fed and Treasury stay in their respective lanes, where Treasury doesn’t comment on the Fed Funds rate and the Fed doesn’t comment on the US dollar.
Bessent is not only fighting the US’s large debt burden, he is fighting a general bear market in global sovereign debt. Global sovereigns tend to correlate and yields have risen across the board.
The second revision to Q2 GDP was unchanged at 1.5%. Consumption was increased from 3.2% to 3.4%. The PCE Price Index was revised upward as well. Consumption contributed 2.3% to GDP growth while investment added .5%. The trade balance deducted 1.1% and government spending was a drag of 0.2%.
In other economic news, durable goods orders rose 1.1% in July, which beat the 0.5% estimate. Ex-transports they rose 0.4%. Interestingly, CAPEX rose only 0.2%, which is surprising given the data center buildout.
Richmond Fed President Thomas Barkin described the US economy as the tenth round of a boxing match with both fighters still standing. He is referring to the economy’s ability to withstand shock after shock, from tariffs to the Iranian war, to rising energy prices.
He compares the AI buildout to the railroad investments during the Gilded Age. Interestingly the Gilded Age also featured a huge increase in inequality which is a hot button issue nowadays.
Mortgage applications fell 1% last week as purchases fell 0.3% and refis dropped 2%. “Mortgage rates reached their highest level in three weeks, with the 30-year fixed rate up slightly to 6.78 percent. Mortgage rates have increased around 20 basis points over the past two months, which has dampened refinancing activity,” said Joel Kan, CMB, MBA’s Vice President and Deputy Chief Economist. “Refinance applications decreased, particularly for FHA and VA loans, and the average loan size for refinances was at its lowest since June 2025.” Added Kan, “Similarly, purchase activity was down over the week, driven by a 7 percent decrease in FHA applications. The purchase market has also slowed these past two months, with applications now 5 percent behind last year’s pace.”
Chris Whalen of the Institutional Risk Analyst had an interesting tidbit about Fannie repurchases. What do you think the biggest driver of Fannie repurchases is? Gotta be appraisal issues, right? It isn’t.
Some 80% of repurchase demands are due to missing PMI. Given that GSE and Federal regs require PMI at origination, this seems odd. It sounds like a lot of borrowers are canceling PMI once the LTV drops below the threshold. Since home prices are actually declining in a lot of MSAs (particularly in Florida and out West) some of those homes that let PMI lapse might need it again. Of all the things that can go wrong in a GSE purchase, PMI generally doesn’t leap to the top of the list the way occupancy or income fraud does.
Speaking of fraud, he also mentioned a common DSCR fraud where the borrower puts the title in a LLC and then “rents” from the LLC, effectively turning an investment property into a primary.
Mortgage delinquencies fell 16 basis points to 3.39% according to the ICE First Look. “July’s data provided another indication that mortgage performance may be finding firmer footing beneath the surface,” said Andy Walden, Head of Mortgage and Housing Market Research for ICE. “While the national delinquency rate and serious delinquency inventory declined, the more telling trend is that new default activity has eased from last year’s levels in four of the past five months, and cure activity is improving.”
Now that home price appreciation appears to be settling down from its protracted deceleration performance may be picking up.
