Uncategorized

Global investor pushback against long-term government debt is turning what normally would be a routine US bond auction into one of the most anticipated events on Wall Street this week. The Treasury is set to sell $22 billion of 30-year government bonds on Thursday, part of its regularly scheduled borrowings. The results, though, will receive special attention because they will offer an instant readout on the scope of market demand at a time when investor appetite for 30-year US debt has soured. READ MORE: Jobs numbers dash hopes for rate cut, mortgage hiring rises"All the auctions will be viewed through the lens of a test of market sentiment," said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. "It feels like US Treasury 30 years are the most unloved bonds out there."Yields on long-term global debt have soared in recent weeks as concern over spiraling debt and deficits led some investors to shun the securities and prompted others to demand a higher premium for the risk of lending to governments.US 30-year yields touched a near two-decade high of 5.15% last month, and even at 4.97% on Friday were still more than a half-point above levels seen as recently as March. The benchmark steadied at 4.97% in Asia trading Monday. READ MORE: Mortgage rates move lower for first time in four weeksHigher yields mean funding pressure at a time when the US is borrowing more and government spending remains rampant. The House-passed version of President Donald Trump's tax-and-spending bill is forecast by some to add trillions to US budget deficits in the years ahead. Moody's Ratings lowered its credit score on the US last month. "We are in a disturbing fiscal trend," said Fred Hoffman, a former fund manager who turned to academia about seven years ago and is now a professor of finance at Rutgers Business School. Hoffman said he'll monitor the results of the auction next week while he's at his vacation home in Martha's Vineyard. Details such as the auction "tail" — where yields settle versus the when-issued level — and the extent to which orders exceed the amount of debt for sale will provide clues about demand. Foreign participation will also be in the spotlight. "If this auction and the next auctions continue to break down with lousy tails and horrible bid-to-cover ratios, then we have problem," said Hoffman, who discusses debt markets and mechanics in some of his class lectures.Lackluster demand for a May 21 auction of 20-year bonds — not an investor favorite — was enough to send yields surging that day. A similar performance for the 30-year bond, a global benchmark, would be even more worrisome. The Treasury will also auction $58 billion of three-year notes on Tuesday and $39 billion of 10-year debt on Wednesday. To be clear, no one is raising the possibility of a so-called failed auction, and there are backstops embedded in the process to help avoid major dislocations. A network of two dozen primary dealers is required to bid at all auctions.The recent rise in yields may also draw in buyers. Brandywine's McIntyre said he recently bought 30-year bonds at a yield of around 5%, a level some see as attractive.'Becoming Disconnected'For many, though, the bigger picture is one of elevated long-term yields for the foreseeable future, even if the outlook for shorter-term securities improves once the Federal Reserve moves closer to cutting interest rates. Greg Peters, co-chief investment officer at PGIM Fixed Income says it's just safer to avoid long-dated Treasuries given they are increasingly linked to political forces rather than monetary policy."Look at what's happening in the long-end rates market: It's becoming disconnected," said Peters, who helps oversee $862 billion of assets, in an interview with Bloomberg TV on Friday. "It's being driven by risk premium, politics, all these other factors." A reading on Friday of US employment in May beat forecasts, prompting a rise in yields.Still, swaps traders are pricing in expectations that the Fed will cut rates by about a half a percentage point in the second half of the year. Fed rate reduction wagers have waxed and waned since December, with the prospect that the Trump administration's tariffs agenda will reignite inflation serving as the primary catalyst for when traders have adjusted wagers.Yields have retreated "as growth concerns resurfaced, but the bigger picture is that they are on a long-term upwards path as long as fiscal restraint remains a quaint notion, as it seems to be in countries around the world."—Simon White, macro strategistAll of this has triggered a so-called steepening of the yield curve and surge in the compensation investors demand — known as term premium — to lend money to the government for decades. A widely-followed New York Fed measure of 10-year term premium is now at almost three-quarters of a percentage point, after being negative about a year ago. That's helped the yield curve steepen, as measured by the gap between rates on US five- and 30-year debt.Also in the mix is a controversial piece of the Trump-backed tax bill. The "revenge tax" provision, which would hit foreign investors in the US with a surcharge if they are domiciled in countries with "unfair" tax regimes, has stirred concern of a buyers' strike on US debt. House Ways and Means Committee spokesman JP Freire has said the retaliatory tax wouldn't cover portfolio interest such as on Treasuries, though questions remain.  Data on the docket this week includes measures on the pace of price gains in May, including both consumer and producer prices, as well as a gauges of inflation expectations — all of which could spark movements in the curve."Overall, a steeper yield curve is the most likely outcome going forward," said Kathy Jones, chief fixed income strategist at Charles Schwab. "If we get soft enough data and the Fed cuts, then it's going to pull short-term yields down. But I think the long end will still be plagued with the issues around the deficit and the long term outlook for a weak dollar and regarding capital inflows."

Forged checks, false occupancy claims and scams on senior citizens are among the schemes  lenders should be aware of as growing interest in home equity lending catches the attention of fraudsters. While home equity lines of credit have been available for decades, the rapid acceleration of mortgage rates over the past three years is raising the profile of the products among property owners looking for an infusion of cash. Typically, HELOCs and home equity loans are offered through banks and credit unions, but a succession of independent mortgage banks entered the market this decade, as interest in refinances withered.READ MORE ON HELOCsWhy HELOCs are becoming fraud target?The rise of accrued home equity wealth this decade to record levels is catching the eye of  potential fraudsters. The current value of tappable home equity sits at $11.5 trillion, according to ICE Mortgage Technology.Because of the heavy bank and credit union concentration, fraud risk has historically come in low, specifically because borrowers are usually already established customers or members, according to Ramiro Castro, chief product officer at Firstclose. The recent increase of nonbanks, where lending can often be conducted online, presents fresh opportunities, though. "That larger IMB is probably closer to someone who'd be at higher risk, because their channel is — for lack of better terms — picking people off the street. They sometimes don't have an existing relationship," said Castro, whose company offers a HELOC point-of-sale system."You're going through a purely online experience — that becomes more of a concern." Top HELOC fraud schemes to look out forWhile knowing a customer well will mitigate risk, it doesn't eliminate it, even when clients are as well vetted as they are at credit unions. Perpetrators rely on both modern technology and old-school persuasion to commit their crimes and avoid detection.  Although the threat from nefarious outside actors is well documented, fraud can be an inside job as well perpetrated by someone close to the victim, and, knowingly or not, the borrowers themselves. Compared to first-lien mortgages,"identity fraud is a little bit more of a risk on home equity loans," said Bridget Berg, principal, industry solutions at Cotality. "It's generally somebody who the borrower knows who might commit the identity fraud. It may be an aged homeowner who's got a caretaker or a relative who has access to things and gets them to take out a home equity loan that they didn't really understand they were doing or completely forges it," she said. Homeowners have also been known to defraud lenders themselves by misrepresenting who they are or the purpose of the original mortgage. As a general rule, home equity programs require the collateralized property to be occupied by the owner."You can't even get a home equity loan if it's not owner occupied, so they will misrepresent that to get that home equity loan," Berg said.Taking out multiple credit lines is a different tactic homeowners used in the recent past to illicitly access home equity. With a lag in reporting new originations to credit bureaus, it wasn't uncommon for a fraudster to open multiple HELOCs at different banks on the same home, which may have been bought with cash. After obtaining line of credit proceeds that, when combined, exceeded the value of the home, the perpetrators left the country, leaving banks to fight amongst themselves, Berg explained. Where other HELOC fraud risk liesThe dark web is a treasure trove for scammers. With personal identifiable information available for purchase, scammers can easily ascertain who has large untapped lines of credit along with other consumer data,  giving them the means to divert funds and HELOC checks that are still a preferred draw method among some borrowers.Culprits could just as easily be an acquaintance who has access to the same information, security experts warn."Account takeover is probably the biggest risk overall with HELOC," Berg said. A change to the mailing address different from the collateralized home, raises a red flag. "That's usually one of those precursors to a fake draw request." What frequently follows is an order for checks to be sent to the new address. "Any kind of change to the contact information that then is followed by some kind of draw activity would be concerning," Berg added. No matter the type of institution where a HELOC might be originated, customer-facing employees and other service staff often serve as the best line of defense to protect valued customers, according to Ashley Goodsell, a senior fraud investigator at Omaha, Nebraska-based Centris Federal Credit Union.     In the case of established clients, unusual behavior should raise warnings, Goodsell said, pointing to an example of recent in-person interactions at one of the Centris' branches when a customer sought to increase a HELOC line.  "The conversation in the branch with that loan officer seemed very fast paced," she said, with the customer expressing exasperation at questions being asked and the waiting time for approval. Following set protocols, the employee alerted the credit union's analysts. "When it was reviewed, we were able to ask them different questions and ultimately identified they were part of a scam to get extra money to send to somebody."Best practices for HELOC fraud preventionWith no commonly accepted underwriting practices or universal loan application as currently exists in the mortgage industry, the responsibility of providing secure HELOC transactions has fallen primarily on the shoulders of the lenders themselves. The strength of fraud prevention measures, as a result, can range from lax to robust.Forming a network of peer institutions locally and nationally to share what is learned has proven to be an effective strategy to keep activity from spreading."What we've realized is with HELOC fraud or synthetic ID fraud, impersonation — it hits one financial, and then they learn from there, and they just keep moving. We've learned it's easier to work together, because we maybe can prevent it and help our customers or our members," Goodsell said. Similar information-sharing networks work for institutions of all sizes, alerting them to the growing potential of risk, according to Cotality's Berg. "We have a consortium where some of the larger banks that do HELOCs send us their data so that we can compare and say, 'Hey, there's something going on with another bank,'" she said.The strongest safeguards, though, might be clear guidelines about how to address suspicious activity, which alongside fraud education and training for bank employees, will help lenders stop scams early, Goodsell said. At Centris, leaders launched an internal red-flag escalation program for staff, spelling out actions to take when suspected fraud appears. Safety precautions include putting transactions on hold for review. The program has helped prevent potential large losses on more than one occasion.  Goodsell prepares staff to engage in difficult conversations with members if a situation initially raises any red flags. "If your gut is feeling that something is not feeling great, asking those hard questions can prevent something catastrophic," she explained. "It's getting through that really uncomfortable moment, and realizing that's on our financials, I tell them it's OK to be uncomfortable for a minute because then we can get comfortable after we know what it is," Goodsell said.

Mortgage companies could soon find it easier to sell the many single-family loans with interest-rate buydowns into the Ginnie Mae market as it plans to soon exempt custom pools from a recently added restriction.Ginnie, which guarantees securitizations of mortgages that other public entities back at the loan level, said it is updating temporary rules that went into effect last month that limit builder rate buydowns to 10% of the loan package.The larger restriction, which Ginnie plans to keep in place for around six to nine months, was originally added to follow standards in the mainstay to-be-announced securities market. So exempting custom pools that are outside the TBA market was a practical flexibility to add."It makes sense that Ginnie Mae is doing this on the custom pools," said Ted Tozer, a fellow at the Urban Institute who previously served as president of the government guarantor.The new exemption for custom pools takes effect June 16.Issuer and securities industry perspectives on buydownsTozer said he's not working with Ginnie but based on his past experience with the government entity and the prevalence of buydowns in the current market, he expects the recently added limit has challenged small issuers and the exemption will be particularly helpful to them."This way they don't have to wait to accumulate a big enough pool where they can get their buydowns down to 10% of the total," he said.Securities Industry and Financial Markets Association guidance places limits on buydowns included in TBA pools and has shown particular concern with "nonstandard" versions of them. Custom pool executions may differ and not be as strong as those in the TBA market.The restrictions Ginnie added in May followed a late March meeting of SIFMA's TBA Guidelines Advisory Council for which the minutes show members discussed concern with the "prevalence" of certain buydowns and "gaps in the disclosure to the market" regarding them.Ginnie's restrictions define buydowns as those "for which funds are provided to reduce the borrower's monthly payments during the early years of the mortgage," typically by "a builder or other property seller," according to its guide.There also are other types of buydowns in the market, including some that reduce the rate for the life of the loanWhy buydowns have proliferated in the Ginnie marketInterest rate buydowns have become increasingly common in a housing market with long-running affordability concerns.Government loans in Ginnie securitizations tend to be mortgages made to borrowers with income constraints so buydowns have been particularly concentrated in that market.Builders have been particularly active in the first-time homebuyer market where much government lending takes place. More than half of new construction sales went to FTHBs last year, according to a recent American Enterprise Institute report. "This transformation has been driven by building smaller homes and offering financial tools like rate buydowns, while median lot sizes declined by 1,050 square feet, enabling greater affordability and access to starter homes," AEI said in the report.Ginnie's other evolving restrictionsGinnie also added a similar 10% limit for high balance loans last month."If a loan is both a buydown loan and a high balance loan, the loan will count against the 10% limit of each requirement," Ginnie said in a bulletin announcing the changes.New guidance on atypical buydowns also is pending, according to the memorandum. Historically, SIFMA has defined nonstandard buydowns as those that exceed 2% of the loan value or continue for more than two years."Additional guidance will be provided that will apply buydown limits to only nonstandard buydowns as described by the Securities Industry and Financial Markets Association," Ginnie said.

The Consumer Financial Protection Bureau has been an effective watchdog for consumers, and its secure, independent funding is key to its effectiveness. That's why a new proposal from the Senate Banking Committee for the massive budget bill now quickly moving through Congress (H.R. 1) to eliminate this source of funding for the Consumer Bureau is so dangerous. Congress wisely created this funding structure, as it has with other financial regulators, to help the agency fulfill its mandate to protect consumers without political interference from the companies it regulates. READ MORE: What's in the 'big, beautiful' Trump tax bill for lenders?Through a law enacted by Congress, the CFPB receives an amount of up to 12% of the Federal Reserve's inflation adjusted profits in 2009. This new Senate plan would reduce that amount to 0%, completely cutting off money the agency's dedicated workers used to hold financial predators accountable for their bad acts and return $21 billion to consumer pockets in the process. The bureau's rulemaking, guidance and enforcement also have help prevent a repeat of the 2008 Financial Crisis, which crashed the national economy and cost millions of people their homes, jobs, and savings.This type of funding stream for the CFPB, independent of the annual congressional appropriations process, has been used for nearly all of the nation's history, such as for the U.S. Mint, which was established in 1792. Congress funds around 60% of our current federal spending this way, including for Medicare, Medicaid and Social Security. Nearly all federal financial regulators are funded independent of the annual congressional appropriations process, including the Federal Deposit Insurance Corporation, Federal Housing Finance Agency, Federal Reserve Board, National Credit Union Administration, and Office of the Comptroller of the Currency.The Congress that enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, which established the CFPB, found "assurance of adequate funding, independent of the Congressional appropriations process, is absolutely essential to the independent operations of any financial regulator."Senator Dodd's Committee cited "repeated Congressional pressure" through this annual process as limiting the effectiveness of the former regulator of Fannie Mae and Freddie Mac. Due to Fannie and Freddie's aggressive lobbying, their regulator was underfunded, understaffed, and disempowered – despite high-profile warnings about risks in weak oversight. The companies collapsed in 2008.Similar efforts to dismantle the Securities and Exchange Commission (SEC) in the runup to the financial crisis illustrate how industry lobbyists have used Congress to starve financial regulators of funds needed to do their job and to weaken oversight. Back then, many members of Congress discouraged the SEC from regulating Wall Street. Just before the economic crash, between 2005 and 2007, SEC staff was reduced by over 10 percent and its spending curtailed by $75 million.Dodd-Frank "specified acceptable levels of [SEC] funding," but just a year after the law's enactment, Congress was "already breaking its promise to investors" by appropriating below the first minimum threshold. Dodd-Frank tasked these agencies with additional regulatory duties, but funding is grossly insufficient – meaning technology and staffing are also. Across the political spectrum, voters get this. In a 2024 poll, over three-quarters of voters agreed with the following statement: "Wall Street and predatory lenders want fewer rules and less strict enforcement so they can rip off consumers, and they are trying to use their wealth and connections in Congress to make it happen by restructuring and weakening the CFPB. We need an independently funded CFPB, like it always has been, that cannot be influenced by political pressure and money from Wall Street."The U.S. Senate should protect consumers and the nation's financial system and reject efforts to defund the CFPB. 

In a move that could further boost a mortgage segment that's expected to grow, the Mortgage Industry Standards Maintenance Organization has put the SMART Doc V3 eHELOC Specification out for comment for a 30-day period through July 5.MISMO, a subsidiary of the Mortgage Bankers Association, is the development standards body for the mortgage industry, which works to promote the efficient exchange of data across the industry. It created the standard after receiving requests for natively created home equity line of credit electronic documents. HELOCs, because of high home prices and stubbornly high mortgage rates, like other home equity products, have and are expected to continue to see growth."The new Doc V3 eHELOC Specification will help lenders and investors that are interested in gaining efficiencies and trust while originating, buying, and servicing HELOCs," said MISMO Acting President Richard Hill in a press release. "The specification applies SMART Doc V3 Verifiable Profile functionality to the HELOC agreement, further enabling the seamless exchange of HELOC data and documents between trading partners."Why HELOC electronic doc standards are neededThe next 12-to-24 months in particular should be a very strong environment for all sorts of second lien and/or home equity products, a panel at the recent Mortgage Bankers Association Secondary and Capital Markets Conference in New York predicted.A TransUnion study noted the number of HELOC accounts grew 8% year-over-year in the fourth quarter, with closed-end seconds increasing by 13%; including first mortgage refinancings, the category grew by 23% to 720,000 total accounts produced during the period.Why this matters to settlement and technology providersThe MISMO document is a welcome development for someone who has experience both as a provider of title and settlement services and as a borrower. "The paper HELOC closing process, even today, remains incredibly cumbersome and even archaic," said Aaron Davis, CEO of the Florida Agency Network."Not long ago, while finalizing my own transaction, I was actually required to fly from Texas to Florida simply to sign my documents at a particular bank branch," he continued. "The availability of remote online notarization and the use of digital SMART documents would have saved us all a lot of time and money."DocMagic, which among its services is closing document preparation, has been ready to support eHELOCs for some time, said Brian Pannell, chief eServices executive."This announcement serves as another indicator of how MISMO and its members are working in conjunction with MERS to provide solution-based products to the eMortgage industry," Pannell said. "The ability to utilize the value add of a SMART Doc technology for HELOCs within the daily transactions between MERS eRegistry business and trading partners provides a tremendous avenue for lenders and investors to further their efforts to eliminate bifurcation of business processes."In a recent interview with National Mortgage News, Pannell noted MERS now permits registry  of home equity lines of credit, as its competitor DART already does.On June 6, a DocMagic client registered the first eHELOC with MERS using a direct integration between the two providers.

The Consumer Financial Protection Bureau under the Trump administration is eyeing revisions and a possible rescission to a number of rules governing the mortgage industry.The consumer watchdog sent five rules to the Office of Management and Budget for review on June 4. Rules on the queue include the Loan Originator Compensation Requirements under the Truth in Lending Act and discretionary servicing rules under the Real Estate Settlement and TILA.The publicly available information on the Office of Information and Regulatory Affairs regarding the LO comp has a note of "rescission." Meanwhile, the servicing rules under RESPA and TILA are described as "discretionary" hinting that only some parts may be slashed.Details regarding what exact changes the CFPB is seeking remain sparse, with the bureau not responding to a request for comment Friday. Inside Mortgage Finance first reported on the development.For years, the mortgage industry has been calling on the CFPB to make changes to the LO comp rule in favor of better protections for consumers and less regulatory burdens for lenders.The rule, originally implemented to prevent steering, has been criticized for disenfranchising lower-to-moderate income buyers by making certain products financially unprofitable for mortgage lenders to offer. Additionally, the industry, specifically mortgage lenders, have wanted to be able to reduce LO comp when an originator makes a costly mistake.Bill Dallas, industry veteran, noted that if changes to LO comp were done properly, it could make mortgage lending "much more profitable." "It is a mess today and it doesn't make sense to have salespeople selling varying products at the same comp," he said. "Reverse is different from an interest-only loan, which is different from non-agency, FHA, etc. They all have different values and different structures."Dallas also noted getting out of the shackles of the LO comp rule would allow lenders to pay their top talent more if they wanted to.Updates to the LO comp was one of the first items the industry was hoping the administration would address, but if it is completely rescinded that could create mayhem, some say.Richard Horn, co-managing partner of Garris Horn LLP, thinks axing the rule "would make the industry nervous." Horn points out if the rule is rescinded, it could actually limit consumer choice and raise interest rates."The borrower potentially wont be able to pay points and fees upfront to the lender," he added. "You have to just have a higher interest rate. The creditor is going to make up those costs somehow."Regarding servicing regulations, stakeholders expressed hope for modernization ahead of the new administration taking office — particularly around loss mitigation requirements."The title of those two servicing rules that were listed says 'discretionary.' I think this is a signal of what they will be rescinding," Horn said. "A lot of the mortgage servicing rules were required by TILA and RESPA mandates, but a lot of it wasn't — it was just the CFPB deciding to do it on their own. I've been saying that for years, like the loss mitigation provisions were entirely discretionary, and so they're really at risk of being challenged."Late last year, the CFPB under the Biden administration proposed new servicing rules, which included a limit on fees servicers could charge borrowers during reviews. In response, lawmakers have critiqued the rule, noting they will increase operational costs for companies."At the end of the day all that mortgage lenders want is a CFPB that's functioning," noted Horn. "And just more reasonable than the CFPB under former Director Chopra."

Community development financial institution The Change Company won judgment against a firm led by its former employee, who previously sued the lender, lodging allegations of misconduct.The Anaheim, California-based parent of Change Lending filed suit in 2023 against Yeti Global Services, a company owned by its former chief of staff Adam Levine. Change accused Levine of stealing and delivering documents for Yeti that facilitated a $10 million extortion scheme against the company.A New York judge awarded Change over $94 million in damages. The Change Co. was founded by former Banc of California CEO Steven Sugarman in 2018 and is one of the country's leading non-qualified mortgage lenders serving minority and low-income communities. Previously, Levine had sued the CDFI for wrongful termination and breach of contract. His lawsuit also claimed Change misrepresented the characteristics of loans sold to secondary market investors in violation of federal laws. "We thank the court for its careful evaluation of the facts which led to this massive judgment in favor of The Change Co.," Sugarman said in a press release. Sugarman, who also serves as Change's CEO, also called the ruling a "great first step to secure justice" for the lender."Proceeds collected from this judgment will be utilized by The Change Co. to further The Change Co.'s CDFI mission of financing homeownership for underbanked Americans," Sugarman added.Why Change and Levine were in a legal battleIn its filing, Change said Levine threatened to report false claims of misconduct committed by the company to the federal government. Investigations related to Levine's allegations yielded no evidence of illegal activity by Change, the company noted. Following Levine's 2023 accusations, the lender temporarily lost CDFI certification from the Treasury Department to originate non-QM mortgages.Change's countersuit against Levine stated that the former employee illicitly removed confidential material to store on Yeti's storage cloud system for its own business purposes. Yeti also "disseminated falsified and doctored documents – documents that Mr. Levine himself manufactured – to the news and media and represented the same to be true," the filing said. A former deputy press secretary under President George W. Bush, Levine was described in the lawsuit as a disgruntled former employee who had been reprimanded after displaying "erratic and hostile" behavior toward other staff prior to his termination, the New York Post previously reported. After leaving his role with the White House, Levine later joined Texas-based private equity firm TPG Capital, before he was forced out in 2014 under circumstances similar to those later reported by The Change Co. In a 2015 suit, TPG accused Levine of extortion after he allegedly threatened employees and took confidential documents to distribute to the media following his termination. The two parties settled later that year for an undisclosed sum. 

Federal Reserve Gov. Michelle Bowman, who was confirmed as the central bank's next Vice Chair for Supervision this week. Bloomberg News Bank ratings, examination practices and capital requirements are all poised for reforms under the Federal Reserve's new chief regulator.In her first speech since being confirmed as Fed Vice Chair for Supervision, Michelle Bowman outlined an ambitious agenda seeking to overhaul nearly every part of the central bank's oversight apparatus with an eye toward greater cohesion and a rigid focus on bank finances."Conditions constantly evolve in the banking system, and so too must the regulatory and supervisory framework," Bowman said. "We must be proactive and responsive in the face of emerging risks and ensure that the framework operates in an efficient and effective manner."Bowman also called for reducing the emphasis on administrative and procedural shortfalls. She also said supervisors should stop trying to eliminate all risk from the banking system. Instead, she endorsed an approach that encourages responsible risk-taking to ensure banks continue to innovate."The goal is to create and maintain a system that supports safe and sound banking practices, and results in the implementation of proper risk management," she said. "Our goal should not be to prevent banks from failing or even eliminate the risk that they will. Our goal should be to make banks safe to fail, meaning that they can be allowed to fail without threatening to destabilize the rest of the banking system."Bowman's road map, detailed in prepared remarks delivered Friday morning at Georgetown University in Washington, D.C., largely tracks with policy positions she has voiced in various speeches, dissenting statements and other comments on bank regulation from the past several years. It emphasized the importance of "pragmatism" in policymaking, regulatory tailoring and safeguarding against unintended consequences. Several of her top objectives also align with the broad priorities of Trump administration officials and Republicans in Congress. Supervisory RatingsIn the early weeks of this year, reputational risk became the poster child for bank supervision run amok, resulting in agency actions and legislation seeking to remove it from examiner guidebooks. The focus on this particular type of supervisory judgment gave way to a broader push to curtail discretion in the examination process, including calls to remove the management component of the critical CAMELS — capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk — rating system.Bowman has, in previous remarks, lamented the fact that two-thirds of large banks are deemed to be not well managed in the Fed's semiannual supervision and regulation report despite the majority being financially sound and well-capitalized.In her speech Friday, Bowman said examiner judgement is a "legitimate and necessary tool in supervision," but emphasized that its use should be "grounded in the materiality of the identified issues" and focused squarely on the financial health of the individual bank as well as the broader banking system.So while the M component is likely to remain in CAMELS rubric, its ability to singlehandedly tank a bank's rating is poised to be diminished. Bowman said the Fed will soon propose a change to the large financial institution supervisory framework that would set a higher bar for determining that a bank is not well managed."This initial change should help address the gap between assessed ratings and material financial risk for those firms subject to this framework," she said. "We have an obligation to ensure that our supervisory ratings are current, credible, and reflect material financial risk. This promotes effective supervision and ensures that firms are accurately rated based on their underlying financial strength, which should increase the public's confidence in our assessment of the banking system."Because it is the Federal Reserve's turn to hold the chair set on the Federal Financial Institutions Examination Council — a collaborative policy board that includes heads of all the federal banking agencies as well as a state banking representative — Bowman will be positioned to influence how other examining institutions handle their ratings processes, too.Bank supervisionAlong with renewed emphasis on financial issues and a shift away from procedural citation, Bowman has other structural changes in mind for the Fed's supervisors. Bowman said the Fed will now require all members of its large bank examination teams to be certified as commissioned bank examiners. Currently, she said, there is no such requirement so many individuals tasked with overseeing and engaging with banks have not gone through the four-year training and licensing program."Regulated entities should be able to expect that all of our examination and supervisory teams have achieved or are working to achieve this level of professional expertise," she said.During a question and answer session following her speech, Bowman said one of the benefits of the training program is that it teaches examiners how to effectively communicate with bankers — a skillset that some in the banking industry feel has been lacking. "It's not only important to deliver messages about what banks are not doing well, but you also have to be able to deliver messages about what banks are doing well, so you have a balance in your communication and you're being appropriately moderate in your tone," she said. "It's important in my mind that, one, we're communicating appropriately with banks, and two, that as we're looking at the largest banks, that our examiners are qualified and have developed an expertise that allows them to have credible findings in their exam reports."Bowman also promised to review other supervisory practices around guidance and so-called horizontal reviews.On guidance, she said agency communication should aim to answer questions and provide clarity to the industry rather than be used as a means for deterring banks from engaging in specific activities. In recent years, she said, supervisory guidance around emerging technologies has only served to stifle bank innovation."It's important that we continue to enable banks to access innovation and we not curtail their ability to engage simply because we don't understand the technology they would like to engage in," she said during the Q&A portion. "It's imperative for regulators not reflexively say 'No, we need to fully understand the technology or process or services a bank would like to engage in,' before we say writ large, 'No you can't engage in those kinds of activities.'"Similarly, she said the horizontal review process — through which examiners compare banks to institutions of similar size and focus — can be an effective strategy for understanding specific topics and practices. But, she said, it is important for examiners not to use these reviews to create de facto policies, in which the most stringent bank's risk management practices become the standard to which others are held.  "Differences in approaches are not indicative of shortcomings, particularly since these can often be explained by distinguishing the underlying activities, scope and scale of operations, and risk tolerance of the firm's board and management," Bowman said.Bank Capital and Basel IIILike her two predecessors, Bowman will also seek to reform the Fed's capital requirements and implement the international standards known as the Basel III endgame. As she has in the past, Bowman made the argument that the current regulatory framework was constructed in a piecemeal, haphazard and backward-looking manner, resulting in structures that were designed to address previous episodes of stress — chiefly the collapse of the subprime mortgage market and resulting financial crisis in 2008 — and that often overlap with one another. "We tend to review individual elements of the capital framework in isolation, without considering whether proposed changes are sensible in the aggregate and contribute to a capital framework in which all components work together effectively," she said. "While each component is important, the aggregate calibration of requirements is ultimately the most meaningful, and we must examine whether this approach in totality appropriately captures risk."To address this, she committed to a full review of the Fed's various capital requirements, including the annual stress test for large banks, the supplemental leverage ratio, the global systemically important bank and the various standards that fall under the international framework known as Basel III.Bowman said the Fed will host a conference on capital next month to bring in bankers, academics and "other capital experts" to identify the best way to rethink the framework."I welcome the opportunity to consider a broader range of perspectives as we look to the future of capital framework reforms," she said. "In addition to considering potential changes to leverage ratio requirements and stress testing, the capital conference will also include a discussion of potential reforms to the GSIB surcharge and the Basel III capital requirements."

Treasuries slumped after stronger-than-expected US job and wage growth prompted traders to trim bets that the Federal Reserve will cut interest rates this year. The Friday selloff lifted yields across maturities by as much as 10 basis points, led by shorter-dated tenors more sensitive to Fed rate changes. The benchmark 10-year note's rate rose eight basis points to 4.47%, and yields across the spectrum once again exceeded 4%. READ MORE: Mortgage rates move lower for first time in four weeksInterest-rate swaps showed traders now see a roughly 70% chance of a quarter-point rate cut by September, compared with a probability of about 90% on Thursday. Fewer than two rate cuts are fully priced in for the year."You are seeing a little bit of the bond market reaction here of pricing out a bit of the expectations in terms of the Fed," Jeffrey Rosenberg, portfolio manager at BlackRock Inc., said on Bloomberg Television. "The big takeaway is a slowing-but-still strong labor market." Nonfarm payrolls increased 139,000 last month after a combined 95,000 downward revisions to the prior two months. The median forecast of economists was for an increase of 126,000. The unemployment rate held at 4.2%, while hourly wages picked up.READ MORE: Spring housing outlook: not all bad newsSteep gains for US equities also curbed demand for bonds. The S&P 500 and other major benchmarks rose more than 1%. Following the job report, President Donald Trump urged the Fed to cut rates by a full point, intensifying his pressure campaign against Chair Jerome Powell. Fed policymakers have said they are waiting for more data before lowering rates as they balance the risks of still elevated inflation and a potential economic slowdown. Officials have said it could take months to gain clarity on the economic impacts of sweeping policy changes, particularly around trade. Consumer price index data for May, scheduled to be released June 11, is expected to slow acceleration, according to the median economist estimates in a Bloomberg survey. The overall rate is seen rising to 2.5% from 2.3%, the core rate to 2.9% from 2.8%.Fed officials traditionally observe a communications blackout beginning the second Saturday before a meeting, a period that begins June 7. Also ahead next week are Treasury auctions of three- and 10-year notes and 30-year bonds, whose expected yields are higher as a result of Friday's selloff. This week's data has painted a mixed picture of the job market amid the uncertainties of the Trump administration's tariff wars. ADP private-sector payrolls showed hiring decelerated in May to the slowest pace in two years, while job openings unexpectedly rose in April."There's nothing here to change the status quo for the Fed," said Ed Al-Hussainy, a rates strategist at Columbia Threadneedle Investment, referring to Friday's report. "Some downside bets on Fed cuts this summer will likely come out."Wall Street views on how much Fed easing is likely to occur this year range from none to as much as 100 basis points. The most common forecast among major banks is for just one cut, in either September or December.Traders are still wagering on policymakers keeping rates on hold at their June 17-18 gathering, and seeing only 10% of a chance for a move in July. "The jobs number takes June and July off the table," said Kevin Flanagan, head of fixed income strategy at WisdomTree. "We continue to play this waiting game and with no visible slowing in jobs, the market now turns to focusing on whether the disinflation trend continues with CPI next week."In the currency market, a Bloomberg gauge of the dollar rose to the day's high after the release of the report, then moderated gains. The measure remains on course for a 0.4% decline on the week, with currency markets increasingly focusing on economic data.

A group of Democratic senators, including Elizabeth Warren and Chuck Schumer, asked the director of the Federal Housing Finance Agency to pause any efforts to privatize mortgage finance companies Fannie Mae and Freddie Mac.President Donald Trump said on social media last month that he's considering a public stock offering for the two government-backed enterprises, triggering speculation that the administration could seek to end government ownership of the two companies. FHFA director William Pulte has confirmed the administration is studying ways to carry out a public offering for the companies. READ MORE: FHFA's Pulte defers to a higher authority on conservatorshipIn a letter sent Thursday, 14 senators asked Pulte, whose agency regulates Fannie Mae and Freddie Mac, to wait on any moves until he has briefed Congress. The letter says that a rushed process could push mortgage rates higher and benefit wealthy investors at the expense of ordinary homeowners. "Hasty and poorly planned changes to the Enterprises could dramatically increase costs for families seeking to purchase a home, rewarding President Trump's billionaire campaign contributors while making the housing crisis even worse," the senators wrote. The FHFA did not respond to a request for comment. The US government seized Fannie Mae and Freddie Mac in 2008 as the mortgage market imploded, putting the companies under a form of government control known as conservatorship. The two companies guarantee trillions of dollars of US mortgages, for houses and apartment buildings.Prominent investor and Trump ally Bill Ackman has advocated on social media for an end to government conservatorship as part of a plan that involves public stock offerings for Fannie and Freddie. Critics say the plan would result in Ackman reaping enormous gains from his own Fannie Mae and Freddie holdings and potentially lead to higher mortgage rates. There is no public evidence that Trump or Pulte are pursuing Ackman's plan and members of the administration have given signs they may look at pursuing a public offering in a way that wouldn't fully privatize the companies. In their letter, the senators asked Pulte if he had met with Ackman or any other hedge funds that own significant shares in Fannie and Freddie. Pulte as well as Treasury Secretary Scott Bessent have each said that while plans are preliminary, the government will not do anything that risks pushing mortgage rates higher. Mortgage rates are near their highest level in decades, and administration officials have signaled concern that the rising cost of homeownership will damage Trump's popularity.