Q3 agency MBS lags targets as home equity, non-QM gain ground

When the third quarter is over at the end of the month, it is likely agency mortgage-backed securities issuance volume will not reach either BTIG and consensus expectations, a new report said. As borrowers shift toward home equity products, originators focused on HELOC and non-QM securitizations have a distinct competitive edge. 

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“If we assume September volume is consistent with the July/August pace (which appears optimistic given rates and typical seasonality), agency MBS issuance would imply volumes 6% below our third quarter expectations and 12% below consensus,” the BTIG report from Douglas Harter said. “Our third quarter volume estimates are 5% below consensus.”

The Mortgage Bankers Association’s Weekly Application Survey released Wednesday morning had the conforming 30-year fixed-rate mortgage at 6.85%, a gain of 6 basis points.

These reports came out prior to the 10-year Treasury reaching 4.86% on Wednesday morning, the highest it has been since Nov. 1, 2023, when the intraday peak was 4.9%. Reports that oil prices reached $100 a barrel appear to be a driving factor. But the markets also likely reacted to Treasury Scott Bessent’s announcement to now triple the longer-debt buyback plan.

The coverage universe Harter cites consists of five companies: loanDepot, PennyMac Financial Services, Rithm, Rocket Cos., and UWM Holdings.

He projects those five to produce $134.6 billion of mortgages, versus the overall consensus of $141.1 billion. Only Rocket is expected to come in above projections by 4%. BTIG is just one of four analysts covering loanDepot, according to S&P Global IQ, and its estimate is the same as the consensus.

For the full year, his projection of $563.3 billion is 2% below consensus for the five companies, while for 2027, he is 6% under at $586.2 billion; the consensus is $574.7 billion and $625 billion, respectively.

Lenders most below issuance estimates: Pennymac and loanDepot

For expected issuance in the current quarter, Pennymac and loanDepot are the furthest below BTIG’s estimates, off by 25% and 17% respectively, based on July and August issuance data. But there’s a caveat for loanDepot:

“We would note that HELOCs, which are not captured in agency MBS issuance, are becoming a bigger part of volume for loanDepot and could be driving some of the underperformance in MBS issuance data,” Harter said. “When compared to our estimate of lock volume (which doesn’t include HELOC), the MBS issuance volume implies 3% lower volumes than our estimate.”

For Pennymac, its agency MBS volume of $5.8 billion in August, was down by 19% versus July. It was also 44% lower than the second quarter’s average monthly pace.

“This is directionally in line with expectations following the weak update for July funded/lock volumes provided with second quarter earnings, but is trending 25% below our estimate through the first two months of the quarter,” Harter pointed out.

But Onity, at plus 5%, and Rocket, plus 1%, are above agency MBS issuance expectations.

BTIG calculated agency MBS issuance of $116.2 billion in August, up 5% for the month, helped by the 8% rise in purchase volume. But for the companies it covers, total issuance was down 2%.

By channel, a 1% drop in correspondent-related issuance was more than offset by a 10% gain in retail and a 2% rise in wholesale.

Non-agency issuance activity during August

Non-agency MBS issuance was up 14% month-to-month, with increases in closed-end second and home equity line of credit securitizations offsetting a decline in the home equity investment segment.

BTIG estimated $8.4 billion of non-qualified mortgage securitizations during August, which it said was 17% slower than the second quarter pace.

In its Aug. 28 non-agency securitization weekly, Bank of America Securities reported $82 billion of non-QM issuance year-to-date. For the same report for July 31, at the time year-to-date issuance was $68 billion.

Methodology differences in measurement by various sources explains the discrepancies.

Home equity product issuances, which include all three segments, totaled $3.3 billion in August, BTIG said. Through the first two months of the third quarter issuance is at a 19% faster pace than three months prior and 10% higher versus the same time in 2025.

Kroll Bond Rating Agency has reported over $23 billion of home equity issuance through the first six months of the year. B of A Securities reports $30 billion through Aug. 28, a gain of $4 billion during the month.

Agency MBS buys at the GSEs

Keefe, Bruyette & Woods, in a Sept. 7 flash note, said the retained MBS portfolios at Fannie Mae and Freddie Mac are now at $173 billion and $140 billion. Both companies currently have a $225 billion cap, although they also have “meaningful room” to make more purchases, said Bose George.

“We expect continued buying from the GSEs through 2026 and into 2027, which should help keep spreads relatively stable,” said George. “However, GSE buying this year appears to be largely dictated by the level of spreads, so buying might remain limited if spreads remain stable at current levels.”

George noted the spread between agency MBS and the 10-year Treasury yield is 101 basis points, modestly wider than where it was at the end of the second quarter, at 95 basis points.

Given the 10-year Treasury to 30-year mortgage spread is at 198 basis points, slightly above the long-run average of 193 basis points, further tightening is not likely, George said.