Mortgage-Backed Securities Insights — Week of May 4, 2026

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

Chairman Powell highlighted the unusually high uncertainty markets are experiencing as multiple daily headlines continue to move the markets. Over the weekend, President Trump threatened a resumption of attacks if Iran were to misbehave. Stagflation era, the 1970s variety, is the market’s main fear as higher oil prices due to the closing of the Strait of Hormuz make their way through the supply chain. And the 1970s parallels don’t stop there — the top Broadway show in 1978? “Ain’t Misbehavin’.” 

Three FOMC members dissented last week and wanted the statement revised to a more neutral stance, not mentioning future easing. The fact is, we are all awaiting actual jobs data to see what direction that takes for the balance of 2026. First quarter GDP came in just over 2%, which is a significant rebound from the Q4 2025, but the data shows 75 basis points of that growth was from the bounce back in government spending, and 1.3% is from the continuing AI data center buildout spending. The portion attributed to consumer spending is not growing.

The futures market reacted by now not pricing in any chance of a Fed ease until deep into 2027. But, as we said, this week is jobs week. JOLTS on Tuesday, ADP on Wednesday, Claims on Thursday and Nonfarm Payrolls on Friday. While the market is looking for a consensus increase of 60,000 jobs, there is the possibility that the pattern of the last four months — a negative number like December and February — follows for April. It will be such a deterioration in the jobs data that will force the Fed to cut later this year. This could be exacerbated by a global economic slowdown, as the effects of higher oil and commodity prices continue to compound. One GSIB bank, in fact, recently shifted their forecast to three eases in 2026 due to this potential slowdown.

Mortgage rates have continued to tick back higher and now sit between 6.375 and 6.5% this morning as a UST ten-year trade over 4.40, and the 30-year bond touched 5%. The mortgage rate is now above the 5.98 low, which we hit earlier this year. Interesting facts about current origination: Over 21% of FHA loans in Ginnie pools this year have been originated with the help of down payment assistance, DPA. In the higher coupons, 22% of the float in the 7% since 2025, and 55% of the 7.5% coupons, were issued with down payment assistance. Further, in the first quarter of this year, first-time home buyers accounted for 69% of all Ginnie loans issued as well as 49% of conventional loans. This is the highest percentage since 2016. Add to this anecdotal reports of credit tightening by mortgage originators in response to the Iran conflict. Concurrently, all cash buying of homes remains near historical highs. These are not healthy trends for the traditional homebuying season. If the conflict is not resolved by the end of this month, we may see 2026 final housing sales be revised lower than either 2024 or 2025, which were two of the worst years in a generation. 

The MBS basis is trading around 115 basis points, with the tightening in April attributed to the large buying of agency paper by the agencies in March. Fannie alone bought 18.3 billion, which was their largest amount purchase since 2009. The agencies may now be the backstop bid, buying on any weakness, which supports MBS spreads going forward for the rest of this year as they still have another 118 billion of mandated buying capacity left before they reach their 450-billion cap. Thank you for listening. Please go to the Texas Capital LinkedIn page for all your updates; until next time.