For the summer doldrums, there is certainly a lot to report on this week: a volatile mix of legal developments, economic data, and policy shifts, all under the broader backdrop of rising (?) inflation pressures and political uncertainty surrounding the Federal Reserve.
The most headline-grabbing story came from the courtroom, where LoanDepot was named as the defendant in a class action lawsuit (Case 1:25-cv-02294-JRR) filed in Maryland. The complaint alleges a years-long scheme by the lender to circumvent Truth in Lending Act (TILA) regulations governing loan officer compensation. The suit accuses LoanDepot of steering borrowers into higher-cost loans while coercing loan officers to falsify disclosures or face reduced or withheld commissions, all in an effort to juice profits around its IPO window. If substantiated, these allegations could have sweeping implications for lender compliance standards, reputational risk, and the broader regulatory posture toward mortgage originator compensation practices. We had a couple of good podcast interviews surrounding these topics this week.
In parallel with legal turmoil, markets digested a steady stream of stronger-than-expected economic data, including robust June retail sales and a decline in weekly jobless claims. These figures reinforced the narrative of a resilient consumer and cast doubt on the likelihood of near-term Fed rate cuts. Yet, the inflation picture remained murky. The Consumer Price Index (CPI) rose 2.7 percent year-over-year, and core CPI increased 2.9 percent, with categories like appliances, toys, and furnishings seeing their largest monthly price hikes in years...signs that tariff-related cost pressures are now reaching consumers. The Producer Price Index (PPI) told a more tempered story, with wholesale inflation flat on the month.
Federal Reserve officials, including New York Fed President Williams and Governor Kugler, responded by signaling comfort with current policy, citing stable inflation and a strong labor market. Still, markets are struggling to reconcile mixed inflation signals, international trade tensions (including newly announced tariffs targeting Mexico and the EU), and a political environment increasingly fixated on the Fed itself. President Trump once again hinted at replacing Fed Chair Jerome Powell before his term ends in May 2026, though the Supreme Court clarified that such action is likely beyond the president’s authority. Despite this, speculation persists that political pressure could shape the future direction of monetary policy, especially if a dovish successor is floated early.
Meanwhile, mortgage rates continued their climb. Freddie Mac’s latest survey showed the 30-year fixed rate rising to 6.75 percent, while the 15-year rate reached 5.92 percent. Rates are now roughly on par with levels seen a year ago. The rise in rates came as the Mortgage Bankers Association reported a 10 percent weekly drop in mortgage applications, despite a seasonal adjustment for the July 4th holiday. This points to continued affordability challenges, compounded by diverging trends in the housing market. On one hand, inventory is slowly rising and home price appreciation is cooling in many regions. On the other, buyers remain constrained by higher rates, and homes are taking longer to sell, discouraging new listings.
Adding (unnecessary?) complexity, the Federal Housing Finance Agency (FHFA) this week released FAQs on the GSEs’ upcoming shift to allow either Classic FICO or VantageScore 4.0 credit models on loan deliveries. Lenders will not be permitted to use multiple scores on a single loan, and while implementation details remain fluid, the move signals an evolving approach to credit risk assessment. The FHFA and mortgage industry alike are preparing for operational and compliance hurdles in the transition period.
Finally, bond markets were whipsawed by inflation fears and shifting Fed expectations. Long-end yields briefly touched multi-month highs as investors reassessed the likelihood of rate cuts this year. Internationally, sovereign bond yields surged in Japan, Germany, and the UK, driven by growing concern over fiscal deficits. Domestically, mortgage-backed securities faced wider spreads as investors priced in continued policy inertia from the Fed and a possible end to the post-pandemic disinflation trend. In sum, the week underscored the complexity of today’s housing finance environment. Legal scrutiny, rising borrowing costs, uncertain inflation dynamics, and regulatory evolution are converging in ways that demand strategic agility from lenders, investors, and policymakers alike.