7.17.26 Housing Statistics; BOKF’s Chris Maloney on MBS Performance; New Rate Highs

Robbie ChrismanWelcome to the Chrisman Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Chrisman. Topics on today's episode include a whole heap of housing statistics, why mortgage rates hit 2026 highs yesterday, and my interview with Bang of Oklahoma's Chris Maloney on agency MBS performance and what investors are watching regarding how normalization of mortgage rates and housing conditions will influence speeds, supply, and valuations going forward. Here, take a listen to a little preview. Thoughts on Fed chair Warsh. He's reintroduced the cone of silence to some degree. He was thought to be a Trump puppet, but he is sticking to his previous roots as an inflation arc, potentially, or he's just setting himself up to be able to lower rates later with some loopholes with his message. I don't know. Your thoughts on the new Fed chair, Kevin. Kevin. Chris MaloneyThe one thing Donald Trump is correct about the man was custom made to stand in front of a camera, in front of a mic, incredibly photogenic. He's a lifelong DC wash Wall Street back and forth creature. He is completely comfortable in the role he's in and the shows. But the reason Donald Trump chose Kevin Walsh is he's a dove. He's always been a dove. Kevin Walsh is the perfect example of what your mom used to warn you about. Forget about what people say. Watch what people do. That'll tell you what they really think. And Kevin Walsh has always screeched like a hawk, and he's always voted like a dove. Look at his behavior while he was a Fed governor back during Bernanke's term. He had 42 chances to dissent. He never dissented a single time. Bernanke referred to him as a good team player. That's certainly what he is. And if you read Bernanke's memoirs from that time, QE, bank bailouts, zero interest rate policy, who was at his elbow the entire time telling him what, you know, giving him suggestions on what to do. Kevin Walsh was his right hand man. So I believe he's a dove through and through. I don't believe the hawkish rhetoric because he's never backed it up with action. I hope I'm wrong. Robbie ChrismanThanks to Zillow Home Loans, Zillow's in-house mortgage lender, for sponsoring this week's podcasts. By integrating Zillow's real estate platform with financing, Zillow Home Loans helps buyers move from dreaming about a home to holding the keys. With tools built for modern lending, Zillow Home Loans loan officers can focus on guiding buyers with care and confidence. Zillow Home Loans is an equal housing lender, NMLS number 10287. When I was a kid, any vacant house was usually creepy and rumored to have someone living there eating cat food. Now, of the nearly 150 million housing units in the United States, over 10% are vacant. Approximately 89.7% of the housing units in the United States in the first quarter were occupied per the Census Bureau, and 10.3% were vacant. Owner-occupied housing units made up 59% of total housing units, while renter-occupied units made up 31% of the inventory. Granted, there are various reasons a unit is vacant, but my guess is some of them could be sold as someone who really wanted them. Severe delinquencies continue to rise sharply among FHA borrowers, reaching 5.4% versus just 1.8% for VA loans. Lower credit quality, recent FHA policy changes, and stress among 2024 and 2025 vintages are driving a growing pipeline of loans eligible for buyouts. While new transitions into severe delinquency have begun to slow and lower coupon pools, large inventory of distressed FHA loans remains, creating potential opportunities for investors as servicers approach Ginny May delinquency thresholds that can trigger mandatory buyouts at par, particularly among servicers with elevated concentrations and 90-day plus delinquent loans. State-level Ginny May performance data shows that severe delinquencies remain heavily concentrated among FHA borrowers, with the highest rates in Louisiana, Maryland, Georgia, and Illinois, and an exceptionally elevated level in Washington, D.C. While VA delinquencies, though elevated, remain substantially lower overall. Looking ahead, three-month roll rates indicate that states such as Mississippi, Georgia, Tennessee, Florida, and Maine are seeing the fastest migration of FHA borrowers and a severe delinquency, while Mississippi, Vermont, Wyoming, Indiana, and DC stand out on the VA side, suggesting these regions are likely to experience higher mortgage buyout activity in the coming months. There's also evidence of the growing importance of geographic loan concentration in assessing Jiny Maple performance and prepayment risk. I wonder how much of that has to do with mortgage rates. Mortgage rates track treasury yields and a wavering stock market, a retreat in oil prices, despite more saber rattling by Iran, and some technical resistance as the ten-year note yield challenged the 4.60% level, all contributed to treasury yield movements. The broader bond market rally remains intact after softer than expected June CPI and PPI data released earlier this week effectively removed expectations for a July Fed rate hike. On the data front, let's turn to Dr. Elliott Eisenberg, who said, quote, June month over month retail sales rose solidly at 0.2%, with May revised upwards. Weekly first time, unemployment claims reigned very low at 208,000. The July Philadelphia Fed Manufacturing Index soared to 41.4%, and the Empire State Manufacturing Index jumped to 15.6. Add inflation that in May and June was listless, a beige book that's decent, and small business optimism that rose. All this points to continued economic resilience and no rate hike anytime soon. End quote. Odds currently sit at 10% for a hike later this month. Despite the encouraging June inflation data, Fed officials continue to stress that one month of softer readings is not enough to declare victory over inflation. Multiple policymakers yesterday and Kansas City Fed President Schmidt, Dallas Fed President Logan, and Governor Cook emphasize post-June CPI and PPI releases that persistent price pressures and energy-related risks could still warrant additional tightening. Markets currently view a September rate hike as roughly a coin flip and probably expect the Fed to remain on hold if disinflation continues, the labor market remains resilient, and manufacturing data comes in positive. The Fed's stated data-dependent approach means that market expectations for the policy paths remain overly sensitive to each new economic release. For today's interview, I wanted to welcome back to the show Bank of Oklahoma's Chris Maloney to talk about agent CMBS performance and what investors are watching regarding how normalization in mortgage rates and housing conditions will influence speeds, supply, and valuations going forward. He's the mortgage strategist at BOK Financial Capital Markets, where he conducts daily data analysis, watches mortgage-related news, studies economics, and speaks frequently with other market professionals to keep a close eye on the mortgage bond market. He provides written market commentary on a daily basis for clients, grants interviews, and delivers speeches to express his views on mortgage bonds, the housing market, and the economic situation in general. How has agency MBS performed so far this year? What have been the drivers of that performance? And what do you see going forward? Chris MaloneyAs of the end of June, the year-to-date excess return tally is uh plus 46 basis points. And we've seen three out of the first six months of the year come in positive. Now, I prefer excess return over generic percentage return. It takes duration into account. Last year, at the same point, at the end of the second quarter, the index was just at plus 10 basis points and about to kick off a six-month streak of not losing ground. That was its longest winning streak since 2009, where you saw from December 2008 to November 2009, the index excess return was positive every month. Of course, that was helped along by the QE1 buying program. Now, this year-to-date positive return total can thank the month of January, which returned a solid plus 52 basis points in excess return alone. Now, there have been a number of factors that drove this performance, notably the lack of net supply during the first quarter combined with bank and GSC demand. Recall that Trump in January ordered the GSCs to purchase 200 billion in agency MBS. So yet another reason I ignore the endless teasers that the GFCs are going to be privatized anytime soon. So the GSCs were buying when the net issuance of agency MBS for the first quarter was just a little over 15 billion. That's about half of the tally you saw in the first quarter of 2025. So gross supply continues to grow over the past three years on both a dollar and a loan count basis, though it remains well in hand, and that's been helping with sector spreads and performance. We've seen 24 months straight now of positive year-over-year gross supply increases on a dollar basis, and loan count growth is also healthy, yet neither of that can be considered a flood of new supply weighing on the market performance. Now, there's been enough demand out there to keep spreads within a tight range. For instance, the US NBS index option adjusted spread as of the end of June was 24 basis points. End of December, 22 basis points. So mortgages love the steady state of affairs, and volatility is yet another drive because volatility is not the friend of mortgages. Banks in particular traditionally shy away from MBS when volatility spikes. And volatility has been very muted now. It's been well over a year. Now, compared to its trailing five-year average, volatility is about one standard deviation below the mean at this time. And we're hanging around the lowest level for volatility since 2021. You also have the shape of the treasury curve that has been beneficial. It was mostly steady all last year, but has been bare flattening as we progressed into this one. Your mortgages are naturally strong performers and a bare flattener. You got a wide window cash flow profile, strong carry advantage compared to your traditional bond structures. Curve flattening also should give lower coupons an edge, given their greater partial duration exposure to the long end of the curve. And in both conventional and Ginny May 30-year space, among the best performers year to date on an excess return basis, your 2% and your 2.5% coupons. And they also both make up an outside percentage of index waiting. Last, prepayment speeds remain very muted. And that helps make hedging cheaper and evaluating mortgages easier. Now, as to how this all will play out going forward, it all depends on whether or not Trump can get out of the war with Iran. Now we can well have an energy crisis on our hands with all the ill effects on inflation and the global economy. We still need to figure out the extent of the damage to energy infrastructure in the Persian Gulf region, uh, what the future state of the strait will be. Is it going to be controlled by Iran, by Iran and Oman? And also how long it will take to refill depleted global inventories. So at the moment, I'll admit I'm reluctant to make any forecast other than I advise our clients stick close to your duration target and be prudent. Capital preservation right now is key. And with agency MBS being free of credit risk, it can make a good port from any storm. Robbie ChrismanI feel like avoiding forecasting is always a prudent move, especially for people that have predicted six of the last two recessions correctly or continue to act like they know where interest rates are going. Anyways, let's talk about what we do know, and that is that prepayment speeds have come off multi-year lows that we saw post-quantitative easing for the fourth time, QE4. Now the rates are back to more normal levels. How will that affect pool spreads? Chris MaloneyMortgage lenders had a brief glimmer of hope. And look, I was hoping on their behalf as well. That was back during the first two months of this year, as a percentage of 30-year borrowers with incentive to refinance, and I define that as 50 basis points or more. That rose from 13% of the universe in December to about 16% and just shy of 20% in January and February, respectively. Now, however, Trump launched the Iran war, and conventional FHA and VA 30-year lending rates all shot higher. As of the end of June, the role roughly 50 basis points higher compared to just before when the war kicked off. And now we're back to just under 8% of the universe of borrowers having incentive, 30-year borrowers. That's much better than the 0%, literally 0%, who had incentive from roughly the beginning of 2022 through the end of 2023. And I don't expect us to fall back into that tarpit. Yet I also don't expect another refinance wave anytime soon. At the moment, using the dollar amount of outstanding mortgages as our guide, just about half of all Americans sitting in 30-year mortgages are paying 4% or less as their rate. And when on earth are they going to move or let that go? They're not. So despite mortgage rates being far more normal than what we saw during the QE4 insanity when the Freddie Matt 30-year lending rate, I think it dropped at 2.3 quarter percent back then. They currently remain high enough, be around six and a quarter to six percent, and that will keep a wave of homeowners from calling their lender and refinancing. Still, the coupon distribution of what homeowners are paying has slowly normalized along with mortgage rates. Take a look at the percentage change in the unpaid balance of each coupon over the last year. For Fannie made 30-year coupons as a percentage of their universe, your 2%, 2.5% have dropped by about 1.25%, while the 5% and 5.5% coupons have increased by about, I was calling roughly 1 and 3 quarter percent of the unpaid balance each. On the Ginny May side, the 2 and 2.5% have dropped by roughly half a percent, while the 5%, 5.5% have increased roughly 1% each. So time heals all wounds, and we're seeing those of what I call the QE4 coupons, your very deeply out-of-the-money coupons. They're slowly being whittled down, but it's gonna be a slow process. So all your prepayment speed, excitement within the 30-year higher coupons from your 5.5% and above, that's where you're seeing your double-digit one-month CPR. We're not gonna get too excited about that because taking the latest speed report, this is your June factor date, and comparing that to one year ago, in Fannie Mae 30-year space, the average difference for your 5% and lower coupons is literally zero CPR. Nothing. In Ginny May 30-year space, the average difference for VA is 2.3 one month CPR lower. For the FHA, it's about 0.7 one month CPR lower. Now for your five and a half to your 7% coupons, where all the excitement is. In Fannie Mae 30-year space, the difference is they're up on average about four one-month CPR. While for the VA and FHA, they're up about nine and four one-month CPR. So again, that's where all the excitement is can be found. It's in your higher coupons. With so many borrowers locked into record low mortgages, the bifurcation of the prepayment speed performance isn't gonna change anytime soon. Robbie ChrismanI'm glad you brought the word excitement to this interview because when I think excitement, I think about mortgage supply and what's it doing. And I think supply of agency mortgage-backed securities, they've been moving sideways over the past few years. Are we gonna get some excitement and see them tick up, or do you see that sideways trend continuing here? Chris MaloneyUm, yeah, most likely it's gonna continue to go sideways. We're back to normal with lending rates. People have finally stopped the ridiculous pining for 3% 30-year mortgage rates to come back. If we do see such low rates again, it'll mean everything went to hell on a handbasket. So you don't want to see that. Gross supply has slowly recovered from its 2023 bottom. I don't even think it hit 1 trillion in that year. They were just below. This year looks set for about 1.4 trillion gross, maybe 75 billion net total. Now, net supply last year, remember, was about 160 billion. That was the lowest since 2014. Maybe we'll come in about half of that this year. So during 2023 and 2024, we came in at about 1.2 trillion gross on average. But if you look back at the average seen in more normal times, which I consider the half decade prior to QE4 upsetting the Apple card, that was from 2015 to 2019. That's my normal period. We average about 1.3 trillion gross. Yet that's in dollar terms. And when you live in a highly inflationary environment, which unfortunately we do, it's best to look at units rather than look at those units in terms of a fiat currency such as the dollar, because that can be misleading. Looking at things in that way, adjust the number of loans created each year, that's the supply I'm talking about in agency MBS. In 2024 and 25, we average about 3.5 million new loans each year. That's well below the 6 million average we saw in the half decade prior to QE4. This is a confluence of prepayment activity falling off with so many mortgages well below market rates and the shortages of homes available for sale. So while supply may have recovered in terms of dollars, we're still a long way from recovering in terms of actual loans being created and pooled. This is why mortgage-related employment is down 33% since the high we saw in 2022, I believe. On the bright side, this will keep supply well in hand. On the not so bright side, it just goes to show how the younger generation is finding the road to home ownership to be a very steep one. That's the reason that Ginny May has taken the conscient terms of issuance over the past three years. You always see that at the end of a home price boom. People stretch in order to be able to make that monthly mortgage payment. It's easier to get a Ginny Mae loan than a conventional loan. So Ginny May is a percentage in dollar terms of all issuance, only made up about 23% of the total in 2019. Now it's been rising steadily over the last three years. It's now hit over 40%. Over the last quarter through the end of March, it averaged 43% of all issuance. Ginny May makes up far more issuance at the moment than either Fanny or Freddie in isolation. We become a far more Ginny Mae oriented market. Each one of the last three years has seen Jimmy May issuance as a percentage of the whole in dollar terms climb to a new record high. That points to the collapse in housing affordability we've seen over the past half decade, and that's helping keep supply well in hand. Robbie ChrismanAnd tying this all together, I mean agency MBS issuance ultimately does rely on housing. What's the current state of the U.S. housing market from your perspective? Do you see a post-GFC price decline in the cards? And I will say, at least from my perspective, it seems that real estate is becoming much more metro specific or dependent. And what I've heard, at least anecdotally, is the Bay Area is going gangbusters from the AI boom, and places that were hot in the pandemic, like Austin, Texas, are not doing so well. But from your perspective, state of the housing market, nationwide price decline in the cards. Alan Greenspan said that was never possible just before the GFC. Keep that in mind. Chris MaloneySpeaking about forecasting, the uh look, you know, forecasting's tough. I I'm not knocking them for it, but I was just out in San Francisco uh a few weeks ago. All anybody was talking about was real estate prices and AI. So you definitely have a boom in the San Francisco area. You're right now. You know, everything I'm about to say, keep in mind, all real estate is local. That's absolutely correct. But overall, the U.S. housing market is a disastrous mess. And I mean that in every sense of the term, and I don't use that term lightly. Now, this is not an economic failure. You know, it's not a market failure, as our college professors used to say. This is a political failure of the first magnitude. Home affordability is a stock issue, and it's been exacerbated, first off, by the underbuilding of single-family homes, which has now been it's been a decade and a half since we've really stopped building single family homes. Now, there's a number of reasons for it. Most popular to bring up is NIMBY, the not in my backyard, which really boils down to a lack of respect for private property. And that's been a problem in the real estate market for decades, but it's slowly getting worse as more rules and regulations and restrictions have been put on housing at the local level. And you can see that in the build rate from 1960 through 2009, one single family home was built on average each year for every 227 Americans. Since 2009, we've only built one single family home each year on average for every 390 Americans. Now, the build rate which collapsed during the 2010 to 2020, it's back up to about a 1.1 million annualized build rate at the moment. That's the same as build rate we saw in the latter half of the 1950s. But we have two times the population now. So not only are we not building enough supply for our to make up the shortfall, which it is estimated to be anywhere from 3 million to 7 million units, we're not even catching up to the current population growth. And besides the underbuilding, the amount of taxes, bureaucracy, regulations, the National Association of Home Builders estimates come to around 30% of the price of a new home is purely just due to that. Your taxes, land use restrictions, everything. So the problem with housing affordability is a supply issue. It's not a financing issue, it's certainly not a demand issue. Nobody wants to sleep under a bridge. It's a supply issue. So any policy proposal that does not address the supply side issue is just not a serious proposal in my mind. Now, second, besides the problem with underbuilding, the supply problem we have today has been exacerbated by so many homeowners sitting in their 4% and below rate mortgages, which we just spoke about. What that has done is the supply of existing homes for sale has dried up. Because the amount of homeowners sitting at 4% or below mortgages, it comes in total to about 17.5 million homeowners. They're stuck in place, they're not moving, they're not selling. There are about 80 million single-family homes in the US, roughly speaking. So about 25% of the single family homes available are completely off the market for the foreseeable future. And you see that in the existing home sale inventory available for sale. It's running at the moment at about 1.3 million, and that sparks all the zero hedge hedge lines that inventory is going up. Yeah, I get it. It is compared to the past three to four years. But the number we have now, the 1.3 million, is about one-third below the 2.2 million average of the existing homes for sale that we saw from 2000 to 2019. You know, this has been so harsh. It's created this price anomaly where your existing home medium sales price has been exceeding that for a new home medium sales price, like eight out of the last 12 months. It's like a used car, which is more expensive than a new one. That's what a disaster our housing market has turned into. So we need to take all these political impediments to the slowing down the building of single-family homes, throw them in the garbage where they belong. But, you know, unfortunately, it's a local issue. That's where NIMBY and all these regulations and restrictions mostly come from. So do I have a solution? No, I don't. The federal government could step in, but not due to that reason. They control essentially the entire housing finance market. And they could help, and this is an unpopular opinion of mine, stop raising the conforming loan limit for Ginny Mae and conventional mortgages. You want to put a ceiling on prices? Stop raising a ceiling for which a mortgage can be qualified for pooling into a taxpayer-backed pool. Since 2002, home prices on a national level have only increased by about 2% per annum. That's a good thing. On an inflation-adjusted basis, that's a drop in home prices, however slight. Now we need that because your average monthly PI is running at about, I think it's $2.2,000 a month. That takes up about 25% of the average household income. Prior to QE4, that was about 15%. So we're probably at the top when it comes to the prices for right now. So you are seeing in certain areas where you saw a lot of building during the QE4 and after Dallas, Denver, Phoenix, they're all seeing price declines. While others, Chicago, Cleveland, New York City, they're still seeing price increases. But on a national level, I cannot see how home prices are going to drop as they did post-great financial crisis. Because the main difference between now and back then is there's a severe shortage of single-family homes. Now you can see that look at your national home prices annualize. The five years of negative home price declines that we saw post-great financial crisis began just two years after prices topped out in 2025. Today, five years after the QE4 home price topped, we're still seeing positive HBA. And you can lay that all on the fact there's just no inventory out there. Robbie ChrismanI want a one word or one last name answer on this, Chris. Best Fed chair of all time. Chris MaloneyProbably Paul Volcker, because he had the curtain. No, that's one word answer. That's it. One word answer. Robbie ChrismanAll right, fine. Elaborate slightly elaborate slightly. Give me a good sentence or two. Fine. Chris MaloneyVolcker, because he did what had to be done. If you go back and look at the New York Times, Time magazine, etc., he got hammered while he was fighting the inflation. We all worship him today, but while he was fighting the inflation, everybody hated him. And that's what worries me about Kevin Walsh. Everything about his career. He looks to me, and I don't know him personally, but he looks to me as just a go-along to get along kind of guy. I don't know if he has the courage to do what needs to be done to get us back down to 2%. Robbie ChrismanWell put. Chris, you know, I always appreciate the time, ton of valuable insights for listeners. And uh hopefully our travels will bring us together here soon. I think we've been trying to do lunch or dinner for a while. Um hope we can make that happen. You will. Good stuff, man. Thank you. Chris MaloneyAny time. Thanks, brother. Robbie ChrismanToday's economic calendar is underway with June housing starts, which came in when did they come in here? At 1.43 million, building permits were 1.367 million, import prices were up 0.3% month over month in June, while export prices were down 0.6% month over month in June, none of which necessarily moved rates. Later today brings due in industrial production and capacity utilization as well as the preliminary July University of Michigan Consumer Sentiment Index. We begin Friday with agency MBS prices better than Thursday's close by an eighth to a quarter, the two-year yielding 4.13, and the ten-year yielding 4.52 after closing yesterday at 4.57%. Let's wrap up with a joke and some housekeeping. I was driving past a prison the other day. Looking out my window, I glanced up and saw a dwarf scaling down a very tall fence. It was obvious he was breaking out of the prison. I looked up at him, he looked down at me angrily, and yelled, What the hell are you looking at? I drove away and thought to myself that was a little condescending. Thanks again to Zillow Home Loans, Zillow's in house mortgage lender, for sponsoring this week's podcasts. By integrating Zillow's real estate platform with financing, Zillow Home Loans helps buyers move from dreaming about a home to holding the keys. With tools built for modern lending, Zillow Home Loans loan officers can focus on guiding buyers with care and confidence. To learn more, visit Zillow.comslash home loans.