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The end of Fed independence would not likely make mortgage borrowing cheaper.
The Mortgage Market’s Worst-Case Scenario Isn’t Higher Rates 📉
“There are roads which must not be followed, armies which must not be attacked, towns which must not be besieged, positions which must not be contested, commands of the sovereign which must not be obeyed.” — Sun Tzu
Asked about Venezuela, President Trump told Times reporters last week that he had no need for international law—his power would be constrained 'only by my own morality.'
That same defiance is now playing out in the economy—and it could have a massive impact on the mortgage industry. The Trump administration, through Judge Jeanine Pirro, is pursuing a criminal investigation against Jerome Powell.
The allegations are purportedly over the Federal Reserve HQ renovation project. But let’s be honest about what seems to be happening here: It is political retribution for Powell not agreeing to reduce interest rates (not that it’s solely his call anyway). After years of trying to deescalate, Powell finally shot back in a video. The message? Trump is using unprecedented, aggressive tactics to control the Fed. But I won’t buckle & will serve out my term.
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What's On Tap - Jan. 12
Fed Independence (Cont.)
“By going public, Powell was making sure that pressure applied in private couldn’t stay private,” wrote the WSJ’s Fed Whisperer Nick Timiraos. “The decision to disclose the investigation appeared to reflect a belief that the public should know what was unfolding: The threat of the prosecution of a sitting Fed chair would be material information for investors or anyone else trying to understand the forces shaping interest-rate deliberations.”
The Trump administration’s investigation is also a not-so-subtle message to the next Fed Chair that if he/she doesn't bend the knee, bad things will happen. The irony here is that removing Fed independence would not likely make borrowing cheaper.
For mortgages, we'd see:
Higher volatility in rates, even if the Fed does cut benchmark rates
Wider MBS spreads, as investors demand a premium for unprecedented political risk
Less confidence in forward guidance, making hedging harder & margins thinner
More whiplash for borrowers
I’d bet that most mortgage executives hope Congressional Republicans pressure Trump to drop the case against Powell & maintain Fed independence. Mortgage execs want lower mortgage rates, sure. But not if it means blowing up the economy long-term.
It’s great that the Trump administration has put forth a number of ideas to help citizens achieve homeownership. For decades we have let bureaucracy & well-intentioned-but-harmful laws get in the way of the real housing goal: To give Americans a shot at homeownership & wealth building. We need more ideas, more creative thinking. Unfortunately, most of the administration’s ideas feel like short-termism.
A 50-year mortgage would save most borrowers little each month while preventing them from building equity.
Banning institutional investors from buying single-family homes doesn’t open up inventory (0.5%). It’s the mom-and-pops that matter.
Capping credit card interest rates at 10% will curtail credit availability & push institutions to juice fees and increase margins elsewhere.
Portable mortgages aren’t very appealing at 7.5% & since they can’t be applied retroactively, wouldn’t have much impact.
Fannie & Freddie buying $200B in MBS might reduce rates by 30 bps or so, but it’s a sugar high given the GSE caps. That money could be better spent elsewhere.
The real, sustainable solutions are myriad & would take many years to implement. Here’s hoping we have that time.
Finally, AI that handles the hard stuff. Friday Harbor helps lenders clear conditions before they exist. See how it works.
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When Agentic AI is the Loan Application Pilot 🧑✈️
Why have your LO take the application when agentic AI can do it? After all, that’s where lenders & POS vendors are heading. One mortgage exec said the reason to exercise caution is simple: This remains a vast grey area of compliance questions long-term.
“What happens if one state comes out & says you can't have an agentic AI agent go take an application b/c they believe it’s a violation of the SAFE Act?” he said. “Right now there’s nothing that says it’s illegal…but even the MBA can’t answer what are the requirements of a human-based loan officer inside of the application process versus an agentic engine & is it a Safe Act violation?”
One POS operator said his biggest worry is releasing an agentic AI application taker & then having regulators later determine it's a licensing violation. “Do my clients sue me? Does a law firm figure out that that was illegal and go to a class action lawsuit against me and all of my clients?”
He also recognized that not doing so puts him at a competitive disadvantage, particularly as lender excitement heads up. “We're in a risk based business,” he shrugged.
The Real Estate Casino Economy Hits Polymarket 🎰
In October, ICE made a $2B bet that Polymarket would give the $100B giant real-time insights into customer sentiment & allow them to partner on tokenization initiatives. “The potential w/ mortgage is somewhat fuzzy, but could be radical,” I wrote.
Well, we’re starting to get a quick glimpse of the potential play. Polymarket has partnered with Parcl, a real-time housing data & on-chain real estate platform, to launch a set of markets that allow users to bet on future home prices.
The housing-focused markets will settle against Parcl's daily published price indices, giving traders & analysts a reference point for predicting future values. Polymarket will list and operate the markets, while Parcl will provide the data.
Color me intrigued…
Quickies
Justin DeMola is taking his talents to Atlanta 🍑. DeMola has joined Equifax as SVP of mortgage & housing. He previously was president of co-op Lenders One & SVP of originations at Altisource.
The guys at RETR have been publishing some cool analysis on LO movements of late. Last week, they noted that LOs change companies at a pretty consistent rate throughout the year. But a closer look shows the mega-producers doing 101+ units a year tend to move in October and May.
There are entirely too many freakin’ mortgage conferences. NFM’s Rick Roque put together a handy spreadsheet w/ all the major ones—there are 45 of them this year. Which ones are worth it? Curious to hear your thoughts; I always get a lot out of MBA Annual & MBA Secondary. I also think HousingWire does a great job w/ their conferences. I’m currently weighing attending MBA IMB in early February. I’ve enjoyed it in past years, but the expense is considerable & I’m on the fence.
About 54% of rentals in Phoenix are giving tenants at least 1 month off their rent, the highest percentage of anywhere else in the country, according to October data from listings website Apartment List. Denver, Charlotte, Austin, San Antonio, Raleigh, Jacksonville, Tampa, Nashville & Vegas are all at 44% or more.
UWM is expanding its massive Pontiac, MI HQ by 120K sf. But that doesn’t mean the wholesaler is going on a hiring blitz. The new space is being used to relocate some teams from the cramped north building & adding meeting spaces & a bevy of new amenities, Crain’s reported.
Well-regarded Pennymac AE Joanne Espenshade has left for First Colony Wholesale.
ARMchair Critics
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