Mortgage-Backed Securities Insights — Week of May 25, 2026

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

Here we are at the beginning of the Warsh Fed chairman era. As a reminder, Kevin Warsh was selected and endorsed by President Trump with an emphasis on structural reform of the Fed as to the size and use of the Fed's balance sheet, guidance to the market as to Fed policy and a hard look at further cutting the Fed's target rate. As we sit today, the futures market is probably seeing a Fed hike later this year, not a cut. One prominent fixed income investor, however, believes that there is room for a cut this year due to what they see as pressure on the jobs market due to the global slowdown linked to the closing of the Strait of Hormuz. 

In June's meeting, Chairman Warsh will get a chance to present and opine on the Fed's quarterly summary of economic projections. The SEP. The FOMC is historically divided, with eight to four being the most recent vote. And even they cannot agree to what they can do in 2026. And as chairman Warsh begins his tenure in a wait and see mode. As to the upcoming data, the bond markets repricing of the funding necessary to finance government deficits and what inflation expectations will be, whether they'll be tethered or untethered due to energy inflation. These are all being priced in.

President Trump's advice to Chairman Warsh was quote, "Don't look at me. Don't look at anyone. Just do your own thing and do a good job." I feel that President Trump channeled my favorite Spider-Man line. "Everyone keeps telling me how my story is supposed to go. Nah, I'ma do my own thing." I asked the leading Fed whisperer yesterday what he expects going forward. He told me that FOMC members do not want to go on record, and that it is unclear what Chairman Warsh can do immediately, as he also has to look through headline noise of a potential cease fire and oil and commodity price movements. 

Rate and MBS facts are that the yield curve continues flattening, and the ten year, while under 4.5% this morning, is 55 basis points higher than Feb 27, which is the day before the Middle East conflict began. Agency origination remains at the three and a half to four billion a day level, same as early May, and the 30-year mortgage rate is about 10 to 15 basis points below the six and three quarter high that we touched last week. 

The 675 level is important as it severely reduces the percentage of outstanding agency loans, under 4% of conventional mortgages, that would have a 50 basis point incentive to refinance. The basis has moved back above 120 basis points, as we are now more than halfway through the traditional homebuying season, with purchase activity being held up by homebuilders increasing incentives while sacrificing margins to move inventory. We will soon know whether increases in existing supply, along with tempered HPA, the S&P Cotality and FAHA home price indices have come out flat to down 0.1%. That's positive for affordability. Thank you for listening. Please go to Texas Capital's LinkedIn page for all our updates. Until next time.