Mortgage-Backed Securities Insights — Week of August 18, 2025

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

This week's macro data is centered on housing, with housing starts and building permits, both expected lower in July; MBA mortgage applications, expected to show more refinance activity; and existing home sales on Thursday. That's expected to come in again lower, even though we're in the traditional homebuying season. 

The why is centered on affordability. In spite of rates that are now in the lower 6.5 to 6.75% band and adjustable rate mortgages, which, around 6%, represent almost 10% of all agency issuance, according to the MBA, and that would be even higher if you took in all home loans, meaning that if you included jumbo primes in that statistic, the affordability index hit a new low in June. The Federal Reserve Bank of Atlanta's Homeownership Affordability Monitor hit this record low, led by higher home prices, higher insurance and higher taxes. 

While the median household income in the U.S. is now $80,000, it now takes $126,000 of income to buy a median price time. Those numbers don't work. 

This week's key event is Chairman Powell's speech at Jackson Hole on Friday. The speech is aptly titled Labor Markets in Transition. And he's expected to lay out his thinking on inflation and the flow through of tariffs, pushed liberation Day. And after the PPI surprise last Thursday, which saw the largest spike in final demand PPI, which was up 0.9% month on month, that's the largest spike in three years, alongside the job growth that we saw the previous week, which is demonstratively lower, as evidenced by that nonfarm payroll revision for May and June and the low print for July. The data, retail sales on Friday, however, continued to signal a soft landing. Federal Reserve Bank of Richmond President Tom Barkin summarized it best: "I am getting a smell of a stronger July on the consumer side." If you look at weekly credit card data, for example, it looks a lot healthier. 

The Fed must combine that, this retail spending activity, with the flip side of rising consumer debt stress. We have seen that credit card mortgage and especially student loan delinquencies are rising. These are just part of the pressures on Chairman Powell. Secretary Benson sees a path to a 150 bps of easing and explicitly wants MBS basis to tighten. He clarified that where rates are, at approximately 150 bps cut, would bring us to what he believes is neutral rate, and that would dampen the MBS U.S. Treasury spread. 

Last week mortgage bankers met at Western Secondary. And I just wanted to give you a few takeaways from what's in the market. Multiple originators spoke about spiking home purchase cancellations in the last 60 days. Originators shared little confidence that even with the lower rates that we now see, that this will translate into substantial increase in home purchase activity for the rest of this year.

Loan officer compensation continues to be under review as well as it is a significant driver of origination cost, and the goal is obviously to lower those costs. Non QM financing needs dominated warehouse finance discussions as well, as this is the now alternative to what's going on in the agency side. On pooling, there is continue taking out of FHA away from the multi-issuer pools, and that is creating a cheapening of the multi-issuer pool itself. A bit technical, but again that impact spreads and pricing for mortgages. 

We all await Chairman Powell's Jackson Hole address on Friday. The market is pricing in 25 bps for September and an additional cut before the end of 2025. Thank you for listening.