Mortgage-Backed Securities Insights — Week of August 25, 2025

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

Chairman Powell went dovish at Jackson Hole on Friday with a pivot emphasizing the "shifting balance of risk that may warrant adjusting our policy stance," which is as dovish a view from him at Jackson Hole since a year ago, which initiated as you remember, 2024's easing cycle. 

The question now is do we see one, two or three 25 bp eases this year with the September ease priced in at 85% and a second ease priced in at over 50%. Yes, inflation is above 2% and still an issue. We will see the PCE inflation numbers before the September 16-17 FOMC meeting. But labor market weakness clearly has the FOMC spooked. Chairman Powell uses the word "curious" to describe the simultaneous lower demand for workers, while the supply of workers has decreased due to declining labor participation rates, reduced immigration and continued demographic aging.

Lower mortgage rates. We're now between 6.25 to 6.60%, and adjustable rate mortgages, ARMS, which are now 5.99%, are driving refinance activity. Refis represented 46% of all mortgage applications last week, and a bump up in purchase applications in 2025 now has purchase activity to be greater than both 2023 and 2024. There is no question that affordability is being helped in some parts of the U.S. by price reductions in parts of the country: Texas, Florida, Colorado, Utah, the so-called "sand states," with the largest online listing service reporting 27% of sellers lowered their asking prices in July, while 30% and other places sold above asking price. Cities leading these price cuts are Denver, Raleigh and Dallas at about 37%. Year-on-year pricing declines are also noticeable in Texas in Austin, down 6% year-on-year, Dallas down 3.9% and San Antonio down 3.1%. Those are three of the top 10 cities nationwide with reported price declines in the last 12 months.

In the MBS investor market, we see health. We see that lower supply is now translating into lower spreads. The basis at 134 bps is close to the 2025 tights, and any rate cuts will further increase the funding spread for buyers such as mortgage REITS, who are issuing equity in anticipation of these better carry fundamentals. Pressure on the Fed and Fed independence is a real market concern. We noted the prolonged standing ovation for Chairman Powell by attendees in Jackson Hole when he began his speech as a show of support. FHFA President Bill Pulte, in addition to publicly attacking Chairman Powell and accusing him of misrepresenting and understating the cost of the Fed's headquarter renovations, has also called for the resignation of Fed President Lisa Cook for mortgage fraud, similar to the mortgage application fraud charges that he accused California Senator Adam Schiff and Attorney General of New York Letitia James of committing, on their agency mortgage applications. Nick Timiraos reported in The Wall Street Journal that the pressure on Federal Reserve President Lisa Cook to resign has a goal: "If President Trump has a majority of the Board of Governors before next March, they would decline to reappoint the regional Fed presidents." 

We await the inflation and jobs data post Labor Day. Until then, thank you for joining us.