Register here for this month’s call: Thursday, January 22nd, 2026, 1 p.m. ET. 

Just before the holidays, RiskSpan’s quantitative modeling team hosted its December Models & Markets call, offering its monthly, detailed look at prepayment model performance, evolving macroeconomic conditions, and what to expect in 2026. Led by Shane Lee and Divas Sanwal, the discussion highlighted a housing and credit market navigating elevated rates, slowing growth, and increasing consumer stress. 

Here’s a quick recap in case you missed it. 

(Click here for the entire 24-minute recording or continue reading for a summary.)  

Why Rate Cuts Aren’t Lowering Mortgage Rates 

Although the Federal Reserve delivered multiple rate cuts toward the end of 2025, the Fed Funds rate remains in the 350–375 basis point range, with futures markets expecting only gradual additional cuts in 2026. As the following charts and tables illustrate, even a move toward 300–325 bps next year leaves policy rates well above pre-pandemic norms. 

More importantly for housing, longer-term rates continue to dominate mortgage pricing. Market consensus forecasts presented on the slides show the 10-year Treasury remaining above 4% for the next two to three years, a view that has remained remarkably stable across forecasting sources. As a result, mortgage rates have been largely unchanged over recent months despite easing monetary policy. 

The implication is clear: refinance and cash-out activity remain extremely constrained and are likely to stay that way well into 2026. Any incremental increase in prepayment activity will come principally from turnover, not rate-driven refinancing. 

Home Prices: Growth Slows, Regional Divergence Emerges 

We used unadjusted Case-Shiller and FHFA data to highlight that month-over-month home prices declined across many large metro areas, even where seasonally adjusted figures appear more stable. Seasonal patterns have shifted materially in recent years, making unadjusted trends especially informative. 

The FHFA four-quarter appreciation map illustrated this growing regional dispersion. Parts of the Sun Belt, including California, Texas, and Florida, have experienced notable price declines, with the Fort Myers area standing out as a recent weak spot. At the same time, select Northeast markets continue to see positive appreciation, with areas near New York showing some of the strongest gains. 

Overall, while a broad-based housing downturn has not materialized, slowing appreciation reduces borrowers’ financial flexibility and reinforces the current lock-in environment. 

Consumers Under Pressure 

As has been a recurring theme in several of our recent monthly calls, the consumer credit environment is showing increasing signs of strain. 

Unemployment has edged higher, reaching 4.6% in November, with younger workers (ages 16–25) experiencing disproportionately higher joblessness. Inflation, while easing slightly, remains stubbornly above target, with recent CPI readings still near 2.7% year over year. 

We are also continuing to see historically high levels of consumer debt and a notable slowdown in spending growth. Unlike typical holiday-season patterns, consumer spending has not accelerated meaningfully, suggesting households are becoming more selective and cautious. 

One particularly telling trend is the rapid growth of buy now, pay later (BNPL) usage. Increasing reliance on BNPL for essential purchases points to tighter household budgets and reduced financial resilience. 

Taken together, these indicators support expectations—also shown in the Fed’s December Summary of Economic Projections—that GDP growth is likely to remain near or below 2% over the next several years, while credit performance warrants close monitoring. 

Prepayment Model Performance: Holding Up Across Collateral Types 

RiskSpan’s prepayment models continue to perform well across Agency collateral. 

For Fannie Mae and Freddie Mac pools with WACs of 5.5% and below, observed turnover speeds declined modestly month over month. As highlighted below, this softness largely reflects seasonal effects and a shorter reporting month. While the model projected slightly higher speeds, overall alignment with observed behavior remained strong. 

For higher-coupon GSE collateral (6.0% and above), December marked a normalization following unusually aggressive prepayment speeds observed in the prior month. As shown in the charts, observed speeds moderated, allowing the model to close the gap and better track realized behavior. 

A similar pattern emerged in the Ginnie Mae collateral, with both discounted and premium coupon cohorts showing improved alignment between modeled and observed speeds. In particular, the moderation in higher-coupon Ginnie Mae prepayments mirrored trends seen in the GSE universe, underscoring the consistency of borrower behavior across agency channels. 

During Q&A, the team also addressed VA loan performance. Internal loan-level analysis suggests VA loans tend to prepay faster than baseline model projections, an area RiskSpan continues to evaluate closely.  

Looking Ahead: 2025 in Review and What’s Coming in 2026 

In 2025, RiskSpan delivered several major Platform enhancements: 

• Prepayment Model v3.7, introducing an out-of-the-money (OTM) slope to better capture turnover lock-in effects 

• Prepayment Model v3.8, adding a new ARM sub-model and additional tuning controls 

• Prepayment Model v3.11, a fully redeveloped framework for non-QM collateral 

• Credit Model v7.0, featuring a full delinquency transition matrix for GSE and Ginnie Mae loans 

Looking ahead, we outlined an ambitious 2026 release schedule, including: 

• A Non-QM Credit Model v7.1 with full delinquency transitions, expected in the first half of the year 

• A broader non-agency credit model later in 2026 

• A completely new prepayment framework—currently referred to as Prepayment Model 4.0—built from the ground up 

We continue to add additional analytics reports on the Platform. Please visit www.riskspan.com/request-access to request free access. 

As always, please feel free to contact us to discuss or learn more. 

Register here for next month’s call: Thursday, December 18th, 2025, 1 p.m. ET. 

Each month, we host a Models & Markets call to offer our insights into recent model performance, emerging credit risks, and broader economic indicators. This month’s call reviewed recent prepayment performance, presented new research on identifying cash-out refinance activity in GSE data, and walked through key macroeconomic and consumer-debt indicators shaping mortgage behavior going into 2026. 

Here’s a quick recap in case you missed it. 

(Click here for the entire 24-minute recording or continue reading for a summary.)  

New Research: Estimating Cash-Out Refinance Activity Using GSE Data 

Cash-out refinance is a component of prepayment modeling that has traditionally been difficult to observe directly. Shane Lee explained how we have been getting at it using publicly available GSE performance data.

Originations vs. Prepayments: Understanding the Gaps 

Voluntary prepayments consist of turnover, rate-refinance, and cash-out refinance components. While originations include a loan-purpose indicator (“purchase,” “refinance,” “cash-out”), payoff data does not. 

Nationally, the gap between prepaid loan counts and contemporaneous originations is significant, especially in earlier years. This is driven in part by new construction, properties without existing liens, and cross-region relocations. 

To improve attribution, our team has been evaluating data at the ZIP3 level, where prepay and origination volumes show much tighter alignment. Shane presented examples, including ZIPs near Ventura, Tucson, St. Louis, Boulder, and Austin, demonstrating that refinances and cash-outs can be reasonably inferred when prepaid loan totals track closely with origination totals in the same geography. 

Where origination and prepay counts align well, origination loan-purpose shares can serve as a proxy for prepay-purpose shares, enabling estimation of the cash-out fraction among prepaid loans. 

Prepayment Model Performance: Stable Overall, With Pockets of Divergence

Guanlin Chen presented a review of our v3.7 model back-testing results. In summary: 

Low-Coupon (≤5.5%) Conventional and Ginnie Cohorts 

Actual October CPRs tracked the model closely for low-coupon pools across Fannie, Freddie, and Ginnie. October’s slight upward movement in discount speeds (which the model had projected to decline) was explained by a calendar effect: one additional collection day offset typical seasonal slowdown. 

When adjusting for day-count, both actual and projected CPRs show similar downward trends. The alignment reinforced Guanlin’s point that lock-in remains firmly intact. Despite lower rates during parts of October, borrowers with sub-4% or low-4% mortgages still show little inclination to refinance, consistent with recent months. 

High-Coupon (≥6%) Cohorts: Speeds Running Hotter Than Expected 

The premium sector told a different story. Borrowers holding 6%–7% coupons responded more aggressively to rate movements than historical incentive-matched periods would suggest. The S-curve steepened further in October, with realized CPRs meaningfully exceeding v3.7 model predictions. 

To address this, RiskSpan’s v3.8 prepayment model introduces a configurable “in-the-money multiplier” that allows users to steepen the S-curve to better capture this more responsive behavior. 

Outliers and Ongoing Calibrations 

While most premium segments prepaid faster than expected, deep-in-the-money Ginnies (WAC >7%) actually prepaid slower than v3.7 projected. We are actively evaluating updated calibration approaches for these cohorts. 

Market Indicators: Rates, Labor Markets, Home Prices, and the Fed 

Mortgage News Daily data showed a recent ~25bp increase in the 30-year fixed rate. The prevailing question on clients’ minds—“Where do rates go from here?”—was addressed via futures and FedWatch probability data: 

• Fed Funds futures suggest the policy rate will likely remain unchanged in December, despite fresh unemployment data. 

• Projections show the 10-year Treasury hovering around 4% for the next several years, implying mortgage rates likely remain above 6% through 2026. 

Labor Market Softening 

The latest (delayed) September unemployment rate rose to 4.4%. Rising unemployment, paired with persistent inflation pressures, creates a challenging backdrop for housing demand. 

Home Price Growth Slowing Nationally 

Case-Shiller data, nationally and across metros, showed: 

• A 0.3% month-over-month national decline in the latest reading. 

• Major metros increasingly showing broad-based price deterioration, with formerly resilient cities like Los Angeles slipping negative. 

While inventory is rising toward a buyer-leaning market, transaction volumes remain soft. 

Consumer Debt: Elevated, Shifting & Stress-Inducing 

Debt rose $200B quarter-over-quarter, with long-term increases far outpacing inflation and population growth in several categories: 

• Student loans: +600% since 2003 

• Mortgage balances: +165% 

• Auto loans: similarly elevated 

Inflation (+71% cumulative since 2003) and adult population growth (~6%) alone cannot explain these increases. 

Aging Households Carrying More Debt Than Ever 

A striking trend: borrowers 60+ years old have experienced 300–500% increases in total debt held. 

In 2003, the 70+ population held only 4% of total U.S. household debt. 
In 2025, that share stands at 10%. This is an extraordinary shift.

This appears to be evidence of structural strain: As people age, they are unable to pay down their debts. Also, wage growth has not kept up with inflation.

Younger households, meanwhile, face increasing difficulty obtaining new credit.

We continue to add additional analytics reports on the Platform. Please visit www.riskspan.com/request-access to request free access. 

As always, please feel free to contact us to discuss or learn more. 

Register here for next month’s call: Thursday, November 20th, 2025, 1 p.m. ET. 

Each month, we host a Models & Markets call to offer our insights into recent model performance, emerging credit risks, and broader economic indicators. This month’s call focused on the impact of the Fed rate cut, key macro indicators and a spotlight on the surging second-lien market. 

Here’s a quick recap in case you missed it. 

(Click here for the entire 23-minute recording or continue reading for a summary.)  

Rates Ease, but Headwinds Persist 

October has brought a modest reprieve in mortgage rates, with the 30-year fixed rate having fallen to approximately 6.2%, the lowest level in nearly a year. 

Affordability remains constrained, however, and long-term headwinds appear far from resolved. Specifically: 

Unemployment remains near 4.2%, and core PCE inflation continues to hover around 2.8%. While steady, this remains above the Fed’s comfort zone. 

Home price growth is slowing nationally, with several major metros posting month-over-month declines. 

Fed Funds futures suggest rates will stay elevated into 2026, with year-end 2025 expectations still in the 3.5–3.75% range. 

Together, these indicators suggest a “higher for longer” policy regime even as the market eyes rate cuts later this year. 

HELOC and Second-Lien Insights: Delinquencies on the Rise 

Leveraging the Equifax Analytic Dataset, a 10% sample of active U.S. credit borrowers with anonymized tradeline-level detail, enables us to dive deep into Home Equity Loans (HELs) and Home Equity Lines of Credit (HELOCs). These asset classes are gaining renewed investor attention as homeowners tap existing equity rather than selling into a high-rate market.

Delinquency rates are trending upward for both HELs and HELOCs, particularly among lower-credit-score borrowers. Aggregated five-year views on page 11 highlight the steady climb, with 600-score cohorts showing the sharpest deterioration. 

These findings echo broader signals of consumer strain visible across other loan products. 

Consumer Balance Sheets Under Pressure

The New York Fed’s Q2 2025 Household Debt and Credit Report underscored the strain many consumers face. Total household debt continues to climb, driven by non-housing credit categories—auto loans, student debt, and revolving balances in particular. 

Credit card and auto loan delinquencies have risen sharply, while mortgage and HELOC performance, though still comparatively solid, are trending downward. Even with stable macro indicators, consumers remain financially stretched. This dynamic is likely to influence credit performance and securitization trends into 2026.

Prepayment Model Updates 

Our prepayment models continue to align well with observed speeds across both Conventional and Ginnie collateral. Lower-coupon collateral (WAC ≤ 5.5%) experienced some deceleration versus forecasts—a function of seasonality and slower housing turnover.  

Higher-coupon cohorts (WAC ≥ 6.0%) reflected more volatility, consistent with recent refinance activity at the margins. 

We continue to add additional analytics reports on the platform. Please visit www.riskspan.com/request-access to request free access. 

Also, please feel free to contact us to discuss or learn more.

Register here for next month’s call: Thursday, October 16th, 2025, 1 p.m. ET. 

Each month, we host a Models & Markets call to offer our insights into recent model performance, emerging credit risks, and broader economic indicators. This month’s call focused on the impact of the Fed rate cut, key macro indicators and a spotlight on the surging second-lien market. 

Here’s a quick recap in case you missed it. 

(Click here to listen to the entire 27-minute recording or continue reading for a summary.)  

Market Backdrop: September 2025

Mortgage rates have hit their lowest levels in nearly a year, averaging close to six percent. The Federal Reserve delivered its first rate cut of the current cycle in September 2025, reducing the target range from 400–425 basis points to a projected 350–375 basis points by year-end. Despite this easing, markets continue to anticipate relatively high rates into 2026. 

Inflation and unemployment are holding stable, but long-term headwinds persist, including sluggish real wage growth and affordability constraints in the housing market. Longer-dated Treasury yields are the key driver of mortgage rates, making them essential for investors to keep tabs on. As bond yields set the tone for borrowing costs across the economy, their movement will be critical in shaping both origination volumes and prepayment activity in the coming quarters. 

Spotlight on Second Liens 

The second lien mortgage market continues its emergence as one of the most active areas in structured finance. Issuance and securitization of second lien products have been increasing rapidly, with no signs of slowing. This expansion is driven in part by rising homeowner demand for tapping into the accumulated equity and lenders’ interest in capturing additional credit exposure in a higher-rate environment. 

Prepayment behavior in second lien mortgages, however, differs significantly from that of first liens. This divergence makes specialized model calibration critical. RiskSpan’s Prepayment Models, calibrated against actual second lien performance, indicate that the models are capturing observed dynamics effectively. With issuance expected to continue climbing, accurate modeling of second lien prepayment risk will remain an essential tool for market participants seeking to price and manage these assets. 

Prepayment Model Updates 

Back-testing continues to show that RiskSpan’s prepayment models are tracking well against observed performance across a variety of collateral types. Recent analysis of agency MBS vintages from 2021 and 2022 revealed that higher-coupon pools, particularly those in the 6.5% range, are slowing more than originally anticipated. 

FN/FH 2021-2022 6.5s

By contrast, lower- and mid-coupon pools—those ranging from 1.5% through 5.5%—have remained steady and closely aligned with model expectations. This outcome reinforces the robustness of the models across different coupon bands and provides confidence in their ability to capture nuanced prepayment behavior. 

FN/FH 2021-2022 1.5s – 3.5s

FN/FH 2021-2022 4s – 5.5s

As we introduced during our August call, consumer credit remains a major focus of RiskSpan’s modeling enhancements. Using the Equifax Analytic Dataset, the team has constructed prepayment aging curves for both auto loans and personal loans. These analyses confirm that borrower credit score bands, measured using VantageScore 4.0, influence prepayment behavior in a manner similar to mortgage loans. For auto loans, the score sensitivity is particularly evident across borrower segments. Personal loan data show similar trends, with one notable difference: the effect of loan term is more pronounced after the first year of loan seasoning. This suggests that term structure plays a more significant role in personal loan prepayment decisions compared to auto loans. 

Auto Loan Prepayment Aging Curves

Personal Loan Prepayment Aging Curves

We are in the process of finalizing these consumer loan prepayment models and will release them shortly on the RiskSpan Platform. This will give clients the ability to incorporate a new level of borrower insight into their own portfolio analytics. 

Looking Ahead 

The integration of Equifax ADS into the construction of prepayment aging curves is just the beginning. We continue to expand our modeling capabilities and data integration in order to provide clients with deeper and more actionable insights. Credit card and student loan models are already in the pipeline, and their release will extend RiskSpan’s modeling coverage across the full spectrum of consumer credit products. 

In addition, the team is adding new analytics reports to the Platform, giving clients free access to timely updates and market intelligence. These ongoing enhancements underscore our commitment to equipping the investment management community with the tools and data needed to navigate complex and evolving credit markets. 

Contact us to discuss or learn more.