Mortgage-Backed Securities Insights — Week of April 27, 2026

Hi, I’m Jerry Levy, Managing Director of Texas Capital’s Mortgage Securities Sales & Trading.

Another week of wait and see dominated MBS trading. Volatility has compressed. Treasury yields are 3 to 5 basis points higher today, and they traded in an 11-basis point range so far in April as opposed to the 40-basis point range in March. The question is whether the market is “Warshed out,” as Kevin Warsh is expected to be confirmed as the next Fed chairman on Wednesday. His testimony last week highlighted his desire to reframe a "broken Fed," which he believes has expanded the balance sheet as an adjunct of fiscal policy and which he would like to reduce to the historical norm of $3 to $4 trillion from the $7 trillion it is today. Remember, the Fed’s balance sheet reached $9 trillion in the 2024–2025 period. The markets are not pricing in another Fed ease, meaning greater than 50%, until July 2027 — and this is with Kevin Warsh’s public statements supporting an immediate Fed ease. 

This week, the world’s central banks — the Bank of Japan, Bank of Canada, Bank of England and the ECB — will all meet and publicly announce something close to the wait-and-see announcement expected from the Fed’s two-day meeting this week. Uncertainty from the closing of the Strait of Hormuz and supply shortages of oil, fertilizer, jet fuel and other commodities have combined with the elevated inflation readings working its way through the system to constrain central bank policy actions with regards to rates, jobs and economic growth forecasts. 

Existing home purchase activity in the U.S. has increased — it is now at the highest rate in three years — and refi applications actually bounced back 10% as rates rallied in the last few weeks. March housing starts will be released on Wednesday, and they are expected to have declined 0.2 to 0.4%. The jobs market remains status quo, with job openings, hirings and quits all declining so far in 2026, with the labor participation rate hitting its lowest since November 2021 — COVID era. And if you go to the previous low, it would be in 1977 to be at this level. Thirty-year mortgage rates start this morning wrapped around six-and-a-quarter, so that’s about 40 basis points below the average of 2025 — 6.65 — but it’s still about 30 basis points higher than the 5.95 low we reached at the end of February. 

The big news in mortgage origination is FHFA and the GSE’s inclusion of VantageScore 4.0 as an alternative to FICO. The headline said that this would reduce the average loan application by $130, and average credit scores under the new method would increase by 5 to 15 points. This understates, however, the effect for the bottom 15% of potential home borrowers, who, under the new credit scoring system — which includes metrics like rent payments — would increase their scores by over 50 points. 

Remember, the quality of the borrower has not changed, just the score and the credit adjustments, called LLPA or loan level pricing adjustments, from the agencies. Those fees would be reduced while the subset of borrowers would have better access to both purchase and refinance. This could potentially increase the repayment speed of loans made to this credit cohort. This program is being rolled out as a pilot by Fannie Mae to 21 of the largest originators, with credit data on the program to be released later this summer, which will help the market evaluate the credit scoring alternatives. 

A final note on how the administration’s headlines have dominated trading: The five largest up days in the S&P so far during President Trump’s administration have followed policy announcements. The president speaks every day, and each tweet or news conference or interview seems to move the market. This is unprecedented. For the U.S. Treasury and mortgage market, it seems that this has provoked 10 out of the largest 10 movements. Thank you for listening. Please go to Texas Capital’s LinkedIn page for all of our updates — until next time.