Mortgage-Backed Securities Insights — Week of March 2, 2026

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

This weekend's events in Iran overshadows the short-term moving interest rate and mortgage rates. Historically, an event like the Iran attack and the potential closing of the Strait of Hormuz would be a strong risk-off, buy U.S. treasury's response. Yet here we are on Monday morning with risk assets and U.S. treasuries trading lower. 

In fact, the 10-year U.S. treasury's 10 basis points wider at 4.03%, and the mortgage basis is trading wider at 111 basis points. That takes us back two-thirds to where mortgage basis were trading before the announcement of the $200 billion agency MBS buyback. 

Today, we begin the traditional homebuying season, and we still expect that lower mortgage rates will finally lead to increased purchase activity of existing and new homes in 2026. The Iran war will certainly delay some of this projected activity, but pent-up buying demand, lower mortgage rates, subdued housing price appreciation for the last 12 months and the fiscal stimulus this year of the Big Beautiful Bill have all combined to improve affordability to the best levels since 2022. MBS origination will continue to increase this year from this refinance activity as lower U.S. Treasury yields, expected Fed fund reductions and the move lower in the mortgage basis will all combine, in our opinion, to lower both the 30-year and ARM rates in 2026, ARM being adjustable rate mortgages. 

Primary voting starts this week in the buildup to the November 2026 mid-term elections. There has been little follow-up to announcements of an impending IPO of Fannie and Freddie, nor a definitive view of the structure of this transaction with regards to the explicit government backstop. 

The waiting game also applies to two other major topics. Significantly, there has been little follow-up to the Fed Vice Chairman for Supervision Michelle Bowman's plan to lower the Basel risk weightings tied to mortgages. The impact of this regulatory change is significant, as it not only frees up bank capital to invest in MBS, but also lays the groundwork for increased competition as regulated banking institutions may return to MBS origination and servicing. The ramifications of this potential policy change have been front and center at almost all of the recent mortgage industry conferences.

Finally, we are still waiting for clarity on the grand jury inquiry into Federal Reserve Chairman Jerome Powell's handling of the Fed Reserve building renovation and the potential impact that will have on the June confirmation of the new chairman of the Federal Reserve. Thank you for listening. Until next time.