Anxiety at MBA Secondary

MBA Secondary might be my favorite mortgage conference of the year — though probably not for the reasons you’d expect. I genuinely enjoy watching capital markets execs attempt to dodge Elmo in Times Square before grabbing a New York slice & going partially deaf at The Mean Fiddler. A true fish-out-of-water experience.

Sadly, MBA Secondary is leaving New York after this year for Chicago in ‘27 & ‘28. If MBA changes its mind, I will gladly host the conference at my Brooklyn apartment in 2027. Only one bathroom, though.

Anyway, enough waffle: Here’s a dispatch-style rundown of what I’m hearing & seeing at Secondary.

The vibes at MBA Secondary are either “pretty good” or “bad, man, real bad.” It depends who you talk to. Attendees & the loiterers at Revel & Rye said business is much better than this time last year. They’re optimistic that the war will end before midterms & we can get back to more competitive rates. But the 10-year Treasury yield is 4.6% & “once you start climbing toward 5%, the margin calls come,” said one IMB exec. “The whole building should be worried at 4.7%.”

Another exec added: Demand is flattening & sales staff are going to continue to ask for concessions. “At some point you just can’t feed the beast at that cost structure.”

Joe Gormley & Matt Jones provided key updates on Ginnie Mae & the FHA (more on that in a bit). But it didn’t go unnoticed that Fannie Mae, Freddie Mac & the FHFA – the biggest players in housing finance – didn’t grace the stage. Sources told The Scoop that FHFA declined to appear & the GSEs weren’t permitted to speak on the main stage. 

Could we still see 5% mortgage rates this year? The war in the Middle East is making that tough, but it will end, BofA’s Jeana Curro said. Between that & the Trump administration leaning more on the GSEs, she could see rates dropping below 6%.

BofA analysts expect a rate cut, but they don't think it will happen 'til July '27. At JPMorgan Chase, John Sim said they expect a hike coming in '27. Under new Fed Chair Kevin Warsh, both see a reduced balance sheet w/ organic MBS runoff. 

If the GSEs had not been buying MBS, rates would be higher & spreads wider. How long can it last? Sim said he thinks the GSEs will hit their caps in September, but Curro believes the FHFA & Treasury will reach an agreement to raise them. As for the prospect of LLPAs & MIP cuts, don’t hold your breath…

Meanwhile, there was quite a bit of talk that the Basel III endgame rules would encourage banks to get back to mortgage lending. The MBA’s Mike Fratantoni could see banks holding more lower-risk mortgages as the new rules would favor held-for-investment loans. “Because the risk weight is a 30% shift from 50% on loans between 60 & 80, so the bulk of loans, a bank’s return on capital effectively goes up.”

A more aggressive bank could do more ARMs, he said. In fact, at JPMorgan Chase, Sim said about 20-25% of originations are ARMs.

The servicing dynamic will be more impactful for depository lenders, he said. “In terms of the MSR rule, I believe that's still open for comment,” added Curro. “I believe the 250% risk weight was a little bit surprising, I know it's industry standard, but I think there was some optimism that that would be reduced.”

Have you ever heard of Portgage, Michigan? “We have 36,000 borrowers – the entire population of the city I grew up in – that have been in & out of serious delinquency, 10 times or more,” said Jones. “Rolling 90, rolling 90, rolling 90. Clearly that is unsustainable. It exacerbates housing supply problems… & exacerbates costs for servicers.”

The FHA reported in its LMI external report in December that “when we give out a partial claim, 41% of the time it’s to a borrower that has already received three or more partial claims,”  he said.

Jones said that the new rules, which have replaced a lot of the onerous documentation w/ TPP, have created a multi-month lag & the result in serious delinquency increases on paper. But the policy change has helped.

“What we are seeing is – and we think this is a positive indicator — that the 30s & 60s are starting to improve,” he added.

The policy change will save taxpayers $2B by changing borrower behavior, Jones said.

This list of parties was put together by Britt Bachelder at Curinos. So major props to her (there are a few missing, like the Polly party). I’ll be hitting up a few parties tonight. Say hi if you see me!

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