9.11.26 Prepayment Speeds; Agile’s Greg Vacura on TBA Trading; CPI Inflation

Robbie Chrisman Welcome to the Chrisman Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Chrisman. Topics on today's episode include August prepayment speeds and what it's telling us despite the rate environment. My rates are caught in a bit of a tug of war even as they rise in what seems like inexorably higher fashion. In my interview with Agile's Greg Vacura on connecting mortgage lenders and broker-dealers to make MBS trading faster, more efficient, transparent, and less reliant on phone-based processes. Here, take a listen to a little preview. Robbie Chrisman I actually do want to start by talking about Agile a little bit. How do you define the company and its role in the secondary markets? Greg Vacura Agile is a request-for-quote platform with two functions. One, it's TBA trading, you know, TBA price discovery. So lenders and dealers are on the platform, similar to other electronic platform providers. A lender can put a bid or an offer out to multiple dealers. The primary use of it is on the bid side. So they'll put a TBA bid to cover their hedge positions to multiple dealers, and they get that answer. They get pricing discovery back within 60 seconds. They choose the best dealer, dealer confirms, trade's over. It's very effective, very fast, and efficient for the lender community. And it provides an alternative to picking up the phone and calling multiple dealers on the phone. So when it's all said and done, it allows a lender to access all their dealers on a trade-by-trade basis. And it allows dealers to see all the volume available. If it's a phone-traded account, the dealer is subject to that lender picking up the phone and calling them. Whereas on Agile, you know, the dealers get to see all that flow that's happening amongst their approved lender base. So TBA, that's you know, kind of piece one of Agile. Section number two is we have a very, very strong pool bidding system. That's a longer setup process, monitoring, deciding which dealers win those pools. And usually the lenders will set up the pool auction, covers about an hour of time. Those pools go out to their dealer set, and then the dealers have generally, like I said, an hour to get levels back. There's communication back and forth. They can chat about pool levels, dealers can talk about their access. The lender has a very good ability to monitor as all those bids come back in on pools to select and figure out which is the best dealer for the pools. So we really are trying to help the secondary manager grow efficiency, effectiveness, accuracy, and ultimately drive some better execution into their shops for the volume they're doing. Robbie Chrisman With homeowners sitting on record equity and clinging to low first lien rates, offering a streamlined digital HELOC has become the single best strategy for originators to capture immediate volume and defend their client database. But tapping into that demand only works if you can actually close the loans, which requires a strong buy box, fast closing speed, and dedicated processing teams that fight to save complex files. When originators receive white glove support for themselves and their borrowers, plus an integrated client success team focused on driving production, HELOC's turn from an operational headache into a primary growth engine. See how Nifty Door elevates the home equity conversation at niftydoor.com slash partner dash application. August prepayments reinforce the view that the 2026 refinancing wave has likely peaked. Aggregate Fannie Mae 30-year speeds fell 12% month over month to 7.1 CPR, slowest since April 2025, and the first break in a 25-month streak of year-over-year increases. Shorter term Fannie and Ginnie Mae II speeds also slowed as largely unchanged mortgage rates left little incremental refinance incentive. Only 3.4% of conventional, 1.7% of VA, and 5.3% of FHA borrowers currently appear refinance incentivized. With seasonals, that's the normal time of year pattern in which borrowers tend to prepay more or less, becoming less supportive, as prepayments typically slow in the fall winter, so the calendar is expected to put downward pressure on prepayment speeds. For lenders and mortgage-backed security investors, the combination points to subdued near-term runoff and continued extension risk. While originators face another challenging period of muted refinance and purchase activity. Ginnie Mae II 30-year prepayments have slowed sharply with aggregate speeds down to their slowest since March 2025. The key takeaway from the latest report is the divergence between VA and FHA. VA loans continue to prepay materially faster, particularly in 6% and higher coupons, where the advantage reflects VA's greater refinance flexibility. With more than 15% of the $2.5 trillion Ginnie Mae II universe in those higher coupons and meaningful dispersion across servicers and younger WALA cohorts. Higher coupon VA pools remain the primary prepayment risk if rates move lower. Servicer composition remains an important differentiator in prepayment performance, with Rocket Mortgage, Huntington, and Fifth Third among the fastest Fannie 30-year servicers, while Rushmore, Mr. Cooper, and CMG ranked among the slowest. American and Rocket Mortgage were particularly fast in younger 24-month to 36-month WALA pools, while Idaho HFA remained notably slow. Rocket Mortgage also led 15-year speeds alongside Newrez and United Wholesale Mortgage, highlighting the importance of pool-level servicer composition and forecasting future runoff. Meanwhile, Ginnie Mae convexity has deteriorated structurally since the late 2010s as loan sizes and borrower DTIs have increased. This leaves recent 2023 to 2025 Ginnie Mae vintages as a latent source of prepayment risk. Relatively quiet while rates remain elevated, but potentially much more reactive to a meaningful rate decline. Younger WALA peaks under today's non-bank servicer landscape reinforce that sensitivity. Under his leadership, the company has upgraded its TBA and pooling platforms, introduced live market pricing, and sharpened its development and testing cycles to more efficiently serve the needs of broker-dealer and lender clients. Robbie Chrisman So my sister listens to this podcast. So we're going to do a little primer for her. Obviously, a lot of people out there know about TBAs, which is a to be announced mortgage-backed security. It's a standardized forward contract to buy or sell a pool of agency mortgages. So when you use these terms like dealer, what is a dealer? When you say broker-dealer, what is a broker-dealer? Take us inside some of the players here that interact in the TBA space. Greg Vacura Yeah, in our terms for the platform, dealer and broker-dealer are kind of synonymous. So the dealers are providing liquidity into that TBA market. There's kind of two sections of dealers, primary dealers and regional dealers. And a lot of the primary dealers are making their own markets, they're taking positions, and they have a lot of liquidity backing them. Typically, a primary dealer has higher levels of approvals from a net worth standpoint, you know, bigger barriers of barriers of entry into their world. We do have some primary dealers on our platform, and they also supplement our 20 or so regional dealers. Regional dealers come in a whole mix of shapes and sizes. Some of them are pass-through dealers where they accumulate some volume and immediately are looking to a primary to offload their risk and they're passing that TBA through and taking, taking a small cut of it. Some regional dealers also are positioners and they'll take a little more, a little more risk, or they have other desks and opportunities and needs. So if one dealer has an area of their organization where they're where they're short and they need to go long, they can use TBAs to find some long positions, or vice versa. If they're long in one area, they can look to their TBA desk to get them some short positions. So they're looking to try to balance out their positions through the day, typically, but some have different business models, so they can take different levels of risk through through the day. But when it's all said and done, we see we deem dealers or broker-dealers kind of as the same thing. They're providing liquidity to lenders to be able to put their hedge positions out and then really protect that interest rate risk internally to that lender shop, ultimately protecting it for the borrower when that loan gets to closing. Robbie Chrisman So obviously, Fannie, Freddie, and Ginny's guaranteed and securitized mortgage-backed securities are the underlying securities that make the TBA market possible for the uninitiated. Can you explain their role in this whole ecosystem? Greg Vacura They are kind of the governing body of ensuring when a dealer buys a Fannie or Freddie or Ginny pool, there's going to be a certain set of attributes and features that are known and guaranteed that the loan fits certain boxes, certain credit boxes, certain income level boxes, DTI, you know, all the things that make a loan Fannie, Freddie, or Ginny saleable are put into those securities and packaged up and sold on a later basis. Now, the very interesting thing about the TBA market in general, a low percentage of that market actually are trades taken out as a TBA by a lender or by an institution that ultimately has a security following through with it. Most of those transactions are positioning. And the vast majority are by institutional players that don't even originate mortgages. They're just hedge positions in the greater world of the financial markets, of the fixed income markets that never have mortgages coming behind it. Now, the lender community is unique because they're taking down these securities. Many times, many lenders just use that for their hedge positioning. And then at time of loan sale to an aggregator or when they may put that loan on their portfolio, they unwind that hedge position. They're not actually packaging securities and selling them with that TBA behind it. But about 10% of the market ultimately has mortgages that flow and fill those securities. So it's a highly traded, highly liquid market with a very small percentage, when it's all said and done, of actual mortgage securities that get created to fill those original bids. Robbie Chrisman So we will go from TBA 101 to TBA 201 here. And maybe a question that was for my sister. Now a question for originators. Obviously, the TBA market's important because it connects the mortgage lock to the secondary market. I ran a lock desk early in my career. This was this was something that was kind of front of mine for me, for people that might not understand, the borrower locks a loan, the lender hedges it with the TBA, the loan closes, the lender delivers or sells that loan or those loans, those loans become part of a mortgage-backed security. The TBA hedge is unwound. So just in summation that connects origination, hedging, aggregation, securitization, MBS distribution, and servicing all together. Can you explain why originators should care about this at all? Greg Vacura Well, the biggest reason to care is to protect their P&L, to protect profitability. The day a mortgage is locked with a buyer, with a consumer, they're taking that mortgage position down and they're guaranteeing, hey, when this loan comes to closing 60, 30, 60, 90 days from now, you will get the interest rate that you locked with us. Well, the market is always moving, plus minus on news all the time. So to protect that originator and to be able to make good on that position that they've locked that borrowing with, they utilize the TBA in many cases to hedge that interest rate risk. And as that originator readies that loan for sale, the loan closes, they guarantee and they give that borrower their interest rate that they promised that lock-in. Now they have their product, their loan that they're going to sell into the into the market. In many cases, lenders sell those loans to bigger aggregators that are in the market, you know, Pennymac, American, et cetera. And at that point in time, they're subject to current market price. Well, they have that hedge on over the course of 60 days to offset that potential loss in interest rate position to that aggregator. The flip side can happen as well. If that aggregator may be paying more at the time of funding that into the secondary market, but in order to kind of guarantee that risk, now that hedge position will most likely be underwater, but it's offset by the gain they're going to get from the originator. And it can go vice versa. If the originator has originated a loan at a 6.5% interest rate and current rates are 7% when that loan's ready to sale, their hedge position will cover that price difference from the 6.5% to the seven current market to keep them protected and keep their P&L protected. You know, the goal of hedging is really, in its simplest form, to break even on the interest rate part of this transaction. And you're going to make your money on origination fees, different costs, and whatever, and some gain on sale of those loans into spec markets and other areas, but you do not want to have a hole in your P&L created by the interest rate you locked in with the borrower being uncovered until that loan closes and funds with your shop and then with your aggregate or takeout. Robbie Chrisman All right, Professor, one final question here. Not a trick question, but why could a lender be directionally right on rates and still lose money on its TBA hedge? Greg Vacura There can be some duration and some, you know, there's some compression between different rates. Robbie Chrisman And I should I should apologize because this gets into you know basis risk and hedge duration and coupon mismatch of X-D and you know fallout and pull through and dollar rolls and change the value of mortgage servicing. Greg Vacura So maybe that was that was yeah, just at a high level, there's many, there's many factors that can come to play when a lender locks a loan. They're subject to assuming X percent's gonna pull through. If if their pull through assumption is off for whatever reason, generally when the markets improve, when rates go down, you have higher fallout because a borrower will walk to potentially another shop or they're gonna ask for renegotiation. So so now you have a lower interest rate that borrowers gonna get. Or as rates back up, a borrower is gonna do all they can to get a loan closed because they have a better loan rate locked in the market. So directionally, you may be hedging all that correct. But if if you're assuming 80% pull through and now you're only getting 75% because of whatever factors, or just a matter of fact, you know, a few borrowers either weren't qualified or the appraisal fell through. Borrower still wants the loan, but the appraisal doesn't support the value of the home. Now that loan gets gets pulled from your hedge. You had everything hedged right directionally, but a few loans here and there fell out, and now you have you have a shortage on what you're actually going to deliver. So a lot of factors come into play, and you really want to stay on top of it as a lender and as an aggregator, understanding your pipeline and the dynamics of how that changes daily. People hedging loans on behalf of or for the mortgage companies that are that are locking those loans in are constantly tweaking all the variables to understand how that pipeline's actually performing versus what was modeled. And you've got to really be sharp on it. You've got to be quick on the fly to make sure those positions are always accurately represented on what's going to happen 30, 60 days from now. Robbie Chrisman So I very much appreciate you indulging me in that. Let's shift to some of what you're working on. Obviously, the tagline is democratizing the TBA market. If it's more democratic now, I'd I won't venture to say that it was socialist or communist or whatever, Marxist before. But but what was it and what are you working towards? Why did an opportunity exist here? Greg Vacura An opportunity existed because a lot of lenders in the market had really great relationship with dealers. They called that dealer on the phone, they got a price. It was generally around screen price. They had a screen, they saw where the market was, they called a dealer, they get a price. It's all good. You're happy, you move on. Well, you don't know at the time, many lenders, most lenders have multiple dealers in their stable to provide liquidity for their positions. And prior to two electronic platforms and lenders using electronic platforms, they were at the mercy of that phone call and being able to call two, maybe three dealers at a time versus you know, and markets can move fast. So versus saying, hey, I have eight dealers in my stable, I want to see which price is best. I'll put it on an electronic platform, get pricing back within 30, 60 seconds, and instead of having to make that phone call. The other slice of it was the electronic markets, historically, the evolution of them has been through bigger electronic platforms that didn't have lender coverage for your smaller and medium-sized lenders. So those smaller, medium-sized lenders were subject to the phone. That was their outlet to get to get value, to get pricing from dealers. Well, now we've said, hey, let's let's uh have a marketplace that allows lenders of all sizes, if you're a mandatory lender, we want to have a spot for you to be able to use an electronic platform to get your pricing discovery and move on from there. Robbie Chrisman So I've been known to be wrong before, and I might be wrong saying this, but if a capital markets desk is not to operate, it's its remit is not to operate as a profit center, it's meant to be a margin maintenance center. Couldn't you argue that the TBA price you get, and thus this whole everything we're talking about today is more important than the final takeout price at the end of the day? Isn't the TBA kind of the mother of everything? Like I said, I could be wrong, but but enlightened. Greg Vacura Well, the TBA price certainly matters, but because it's such a highly traded, highly liquid market, the spread between, you know, potentially the pickup when you're putting it on an electronic platform versus one dealer is a tick or two. So the width of that market is still pretty narrow. And you're not necessarily going to be in a bad position if you pick a dealer takeout that's a tick lower than another one. You know, three basis points. Robbie Chrisman There's it adds up, man. Greg Vacura I mean, it adds up big time over time. But when you look at all the cost of an operation, all the you know, sales cost, when you start factoring in the revenue generated and made on a loan, those pieces are the big driver. But three bps at a time certainly adds up, especially for shops that are doing a significant amount of volume. It's real dollars, but as a percentage of the overall transaction, it's not huge, but it certainly matters when it's said and done. Robbie Chrisman I mean, capital markets desk, you're you're things are getting so granular that fractions of a basis point make a difference now, especially at scale. So, what is TBA trading nirvana look like? And I'll I will package that with how have things been going at Agile. How close are you getting us to TBA Nirvana? Greg Vacura Well, we're we're working on it every day. We're we're signing up new accounts. And from the TBA side, yeah, I think it's just utilizing the outlets and opportunities available for a secondary manager to get their best execution and allowing your dealers access to view what your pipeline is and what your trade volume is, because different dealers have always evolving different needs. So if I'm a dealer that has an axe on a certain coupon for a certain time frame, I want to see all the volume I can get to fill that axe. And if I'm dependent on the phone call or I'm a dealer saying, okay, hey, I'm in on that, I'm in on this this product right now, fill me up. They have outreach to go to you know 60, 70, 80 lenders. Whereas if they know they're gonna see it on an electronic platform, the moment they have that axe, they can bid it up on the platform and they win. Lender benefits by that by that need. And as soon as that dealer may may be full, they can pull back a little bit. And that necessarily doesn't hurt a lender because now the lender will go to dealer number two or you know, dealer one drops to two or three. So now the new a new dealer is in place. Take that trade and move on. So from a trading price discovery standpoint, the more trades done on an electronic platform drives a better value for the lender and opportunity for the dealer. Now, the second big benefit of an electronic platform is accuracy and efficiency. Accuracy is by far a huge improvement over the phone. Over the phone, numbers get written down, they get heard, they get put on a blotter, there's manual transfer pieces, and mistakes happen. Not often, but when they happen, it could be detrimental. If you have a position that you put on the electronic platform at 2 million, and it got written down on your blotter at 20 million, or the dealer heard 20 million, and now you're off and you have a mismatch to what your coverage is versus the time it takes to discover that issue. Months can go by and the market moves, and one party could be out significant dollars. On an electronic platform, it's all recorded, all very, very trackable, traceable. And the moment that trade happens, it's put on a blotter electronically, and your position is updated to the exact trade that happened, not a written-down trade or not a written-down number in the position. So we on the platform just simply do not have settlement issues with pricing and with coverage. Whereas many lenders that are listening to this will probably be like, Yep, over the course of the last few years, if I've been trading over the phone electronic or over the phone versus electronically, most likely they've had a few trade issues or trade settlement issues. Sometimes it's not detrimental, sometimes it could be in the lender's favor, but let's not have any issues. Get it done electronically and it's clean and smooth. And you save the time working through those issues when one does surface. Robbie Chrisman So, yes, if you're a lender out there listening to this, go sign up with agile. I know you're also trying to sign up more dealers. So hopefully, some dealers are listening to this best next steps for them, ways to reach out, what you're hoping for. Greg Vacura Yeah, you can come to our website, you know, Agile Trading Technologies. Robbie Chrisman That's not the URL. Give us the URL. trade-agile.com. Greg Vacura trade-agile.com. I should know that off the top of my tongue, but I'm on the hot seat here. Yeah, reach out to us on our on our website. Uh Tawab Abawi is is our is our head sales sales guy on the dealer side. He's phenomenal. He knows a lot of dealers. Most dealers probably already know him, but Tawab's ready to talk and get you added to our platform. Robbie Chrisman There you go. I really appreciate it, man. You know, this is this area is of particular interest to me. If you're a dealer, go sign up, go check him out. Greg, thank you very much for the time. Greg Vacura That's that's it. We love all our lenders, all our dealers, and uh we believe we have an ecosystem that that meets both their needs. And um price discovery, a lot of volume traded on the platform, or a lot of volume priced on the platform. We don't take a position either way. It's we're here to provide a service. Um, the actual trade still happens between the dealer and the lender. Join us and be part of be part of the electronic wave. Robbie Chrisman Rates are caught in a tug of war between an increasingly oversold treasury market with potential technical support from buybacks versus persistent inflation, fiscal supply, and geopolitical risks. Selling pressure continued yesterday as President Trump's fiscal rhetoric, his proposed dividend adds to a growing list of costly payout ideas and raises significant questions about its impact on the federal deficit, combined with rising oil prices, higher interest rates, weaker foreign demand for U.S. bonds, and muted response to Treasury Secretary Scott Bessent's buyback initiative. 30-year Treasuries have now breached the politically sensitive 5.30% threshold. Economic data didn't help matters as August PPI rose 0.4% month over month and accelerated to 5.4% year over year while core PPI undershot expectations. Jobless claims remained benign and the ECB raised rates 25 basis points. Despite a remarkably strong $22 billion 30-year treasury reopening with a 2.7 basis point stop through and 2.61 times bid cover and record high indirect participation, the broader sell-off resumed, pushing the 10-year yield toward 4.95%, Brent crude above $108 a barrel, and equities lower. Mortgage-backed securities significantly underperformed the broader rate sell-off across all maturities, with current coupons and spreads worsening. A heavy corporate issuance calendar is likely to keep pressure on rates through the Fed decision and Chair Walsh's press conference. Recent Fed commentary has suggested greater willingness to prioritize inflation, and the robust August jobs report released a week ago not only reinforced U.S. economic exceptionalism, but also shifted focus to today's CPI as the key determinant of next week's Fed decision. Speaking of, we've received August CPI of 0.4% as expected after increasing 0.1% in July, and core CPI was up 0.3% month over month and 2.4% year over year. Later today brings preliminary Michigan consumer sentiment and August's Treasury budget. After the high inflation numbers, we have agency MBS prices worse an eighth to a quarter versus Thursday's close, the two-year yielding 4.64, and the 10-year yielding 4.97 after closing yesterday at 4.94%. It's likely that this will push markets toward pricing in a 25 basis point rate hike next week. Let's wrap up with a joke and some housekeeping. A broad buy box and hands-on mortgage expertise means more loans close faster for banks, credit unions, and brokers. Clean files close in as little as 0 days. To learn more, visit niftydoor.com. That's nftydoor.com.