Capital Markets Recap – November 13, 2026

Persistent inflation, increasingly hawkish Federal Reserve commentary, and economic uncertainty continue to drive volatility in Treasuries and mortgage-backed securities (MBS). October’s inflation readings came in hotter than expected for the third consecutive month, with headline CPI rising 0.4 percent and core CPI increasing 0.3 percent, reinforcing expectations for additional Fed tightening. While markets increasingly view a 25-basis point rate hike in December as nearly certain, the possibility of a 50-basis point increase has also entered the chat following comments from several Fed officials. Weak demand at recent Treasury auctions, particularly this week’s $42 billion 10-year auction, added to selling pressure, sending yields higher and weighing on MBS prices. 

October existing home sales fell 5.5 percent month-over-month to an annualized pace of 3.75 million, the lowest level since August 2010. That’s an 8.8 percent year-over-year decline. Mortgage rates above 7 percent, persistent inflation, and deteriorating affordability continue to discourage buyers. All four regions recorded annual sales declines and the West reached its weakest sales pace since data collection began in 1999. Mortgage applications from MBA offered a modest bright spot, increasing 6.2 percent for the week ending November 6, as purchase applications rose 8 percent and refinancing activity increased 5 percent; however, purchase and refinance applications remained 18 percent and 57 percent below year-ago levels, respectively. 

Mortgage credit availability also remains historically constrained, increasing just 0.4 percent in October, with government-backed borrowers experiencing particularly significant reductions in credit access. This environment has accelerated the industry’s shift toward Ginnie Mae, which accounted for a record 42 percent of Agency issuance year-to-date and 47 percent in October, surpassing Fannie Mae and Freddie Mac individually. The growing concentration of FHA and VA lending has important implications for MBS investors because these borrowers generally have lower credit scores and higher delinquency rates than conventional borrowers. Meanwhile, limited refinancing incentives, slowing purchase activity, and constrained mortgage production are creating additional pressure on lenders and mortgage servicing valuations, with monthly gross MBS issuance potentially remaining below $100 billion.

Seasoned Ginnie Mae pools and select higher-balance securities continue to present relative-value opportunities. However, mortgage servicing rights valuations face renewed headwinds, with declining real yields, a narrowing Treasury 2-year/3-month funding spread, and widening credit spreads simultaneously signaling less favorable valuation conditions for the first time since February. Limited refinancing opportunities are also reducing servicing runoff, but the corresponding weakness in purchase originations is restricting overall new mortgage production. 

Research from the Urban Institute comparing Classic FICO, FICO 10T, and VantageScore 4.0 found that FICO 10T and VantageScore 4.0 produce similar score distributions, averaging approximately 13 points above Classic FICO and placing roughly 31 percent of loans in the 800-or-higher category, compared with just 14 percent under Classic FICO. All three models demonstrated an ability to rank-order default risk, although FICO 10T captured the largest share of defaults in the riskiest decile, followed by VantageScore 4.0 and Classic FICO. Averaging borrower scores generally performed better than relying on the lowest score. Some lenders, including PennyMac, have already confirmed accepting VantageScore without requiring accompanying FICO scores, while other investor and agency guidelines remain inconsistent. FHA guidance permitting FICO 10T introduces additional considerations because it requires lenders to use the lowest applicable score. FICO’s changing pricing structure and questions surrounding its 2027 pricing have intensified industry frustration, with some lenders arguing that credit bureau and reseller costs account for a much larger portion of total borrower credit expenses than the scoring model itself. 

Industry layoffs and staffing reductions at organizations including Fannie Mae, Freddie Mac, Go Mortgage, Mortgage Solutions Financial, and Onity (among others) reflect the pressure on mortgage businesses as production volumes remain constrained. This is prompting lenders to use more granular performance data to evaluate loan officers based on actual production, profitability, pricing concessions, and referral relationships. Separately, the Department of Veterans Affairs faces growing questions about its Automated Decision Support system, following an increase in claims evidence errors from 66k in 2021 to 329k in fiscal year 2026. The percentage of claims returned for additional evidence has climbed from 23 percent to 35 percent. Veteran homebuyers continue to face significant affordability challenges, with fewer than 8 percent of homes listed across 196 U.S. metropolitan areas affordable to median-income veterans using zero-down VA loans.