Mortgage-Backed Securities Insights — Week of June 1, 2026

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

In the options market they talk about time decay, which basically is the gradual loss of value for an option as it approaches its expiration date. Options have a finite lifespan, and as time passes, there is less time for the underlying asset to make a profitable move. Think of a permanent cease fire and the reopening of the Strait of Hormuz as the event and the option being traditional homebuying season buying. Delay reaching an agreement, and here we are at June 1, is decaying the value of the 2026 traditional homebuying season. Like options, this is a short-term view. Existing and new home purchases, new home applications, refinance applications and overall mortgage applications all have declined from the beginning of March as mortgage rates rose 50 basis points from the year's low. New home construction decreased 2.8% in April, and starts of single family homes declined 9% in April, which is the most since August.

Long term, however, homebuilding in the U.S. remains attractive. Berkshire Hathaway just announced that it is doubling down on their home building presence. They own Clayton Homes. By bidding $6.8 billion for Taylor Morrison, which has 350 communities across 12 states. 

Rates rallied last week, which reduced the monthly selloff and made to about ten basis points as the curve bear flattened. Two tens flattened to 43 basis points, which is the lowest since a year ago in August. The futures market is now pricing in the probability of a rate hike at 57% this year, down from 95% and a 94% chance of a hike by April, 2027. This is in spite of PC data last week showing core inflation increasing further from the Fed's 2% target. Remember, this is net of energy and food inflation. And this is what FMOC voting members have been referencing in the last week to support their bias for the next Fed move to be a rate hike. 

Chairman Warsh will present the next stop projections at the June meeting later this month. Jobs data this week will have an outsized influence on the FMOC's Q&A following the meeting. Job growth is expected to be positive, with estimates between 50,000 to 115,000. The MBS basis tightened five basis points last week to under 110 basis points. We're now back to the lows of late April before the rate selloff, as the reality of reduced MBS supply is now being priced in. Risk off trading limits the moves tighter from here, but there is growing recognition that Bank, REIT and money market buying will continue to support the MBS market. 

We start June at approximately 6.5% 30-year mortgage rate, and this is supporting increased HELOC and non-QM issuance as homeowners look to unlock equity from their homes. And the alternative is using a HELOC instead of cash out refinancing. Consumers remain strapped as the percentage of credit card balances delinquent over 90 days rose to 13% in May. This is the highest level in 15 years, the most since the period following the 2008 financial crisis. Credit card, student loan and auto loan delinquencies are all at their highs since that period. Home price appreciation is moderating. That moderation has accelerated in the last six months, and that brings the year-to-year gains closer to 1%, which is reversing the wealth effect for many. 

Thank you for listening. Please go to Texas Capital's LinkedIn page for all our updates. Until next time.