Register here for next month’s call: Thursday, May 21st, 2026, 1 p.m. ET. 

Key Takeaways 

  • Prepayment models continue to perform well, with March speeds driven by a February rate rally and day count effects 
  • A new Non-QM Credit Model (CM 7.1) is on track for release near end of Q2 2026, with a dedicated webinar planned for end of May or early June 
  • Housing turnover analysis reveals rate sensitivity at positive refinancing incentive levels — a finding that will inform the next prepayment model 
  • Mortgage rates hit a six-month high in March before pulling back; rates are expected to remain above 6% through 2026 and 2027 
  • No Federal Reserve rate cuts are expected in 2026; the consumer remains under pressure from elevated rates and rising credit card balances 

You can read the recap below or click here for the entire recording. 

Prepayment Model Back-Testing: April Factor Data Update 

The prepayment model continues to track realized speeds closely across Agency collateral. Results are available on the Edge platform under the Vertex module. 

Fannie/Freddie — Discount Coupons (WAC 5.5 and Below) 

Discount coupons showed a modest uptick in March speeds, driven primarily by two factors: 

  • A day count effect: March had three more collection days than February 
  • Seasonal turnover patterns typical of the spring housing market 

Figure 1: FN/FH Discount Coupon Back-Testing — Model CPR vs. Observed CPR 

Fannie/Freddie — Premium Coupons (WAC 6.0 and Higher) 

Premium coupons saw a sharper increase in prepayment speeds in March, driven primarily by the rates rally in February. With rates subsequently moving higher in March, May factor data is expected to show a decline in speeds — a clear convex response consistent with model expectations. 

Figure 2: FN/FH Premium Coupon Back-Testing — Model CPR vs. Observed CPR 

GNMA — FHA and VA Segmentation 

GNMA performance showed a similar pattern to Fannie/Freddie across discount and premium coupons. A notable enhancement this month: the team has introduced the ability to split GNMA back-testing results by FHA vs. VA segments on the Vertex report, providing additional analytical granularity. 

Two segment-level observations: 

  • FHA: FHA: The model has shown a slight drift in prepayment speeds over the past year. This is primarily attributed to the FHA trial modification policy change in 2025, under which servicers are no longer required to buy out delinquent loans — a policy shift that has meaningfully reduced prepayment speeds relative to historical levels. 
  • VA: VA: A discrepancy between modeled and actual speeds reflects the default VA-to-PMMS spread assumption being too tight. Users can adjust the VA spread to current market levels within the platform to bring results into closer alignment with observed speeds. 

Figure 3: FHA Segment Back-Testing 

Figure 4: VA Segment Back-Testing 

New Non-QM Credit Model: CM 7.1 

Guanlin Chen from the Quantitative Modeling Group presented an overview of the upcoming Non-QM Credit Model, version 7.1, expected to be available to all users near end of Q2 2026. 

Model Structure 

CM 7.1 follows the same three-component framework as RiskSpan’s agency credit model: 

  • 1. Transition Model — generates a time-varying transition matrix estimating transition probabilities across delinquency states and time periods 
  • 2. Liquidation Timeline Model — applied once a loan enters default 
  • 3. Severity Model — estimates final losses on the defaulted balance 

A key design decision: the model is built with separate sub-models for each documentation type, consistent with the segmentation used in the Non-QM prepayment model: Bank Statement, DSCR, Full Doc, and Other. This segmentation reflects the meaningfully different performance characteristics across these loan types and allows for more accurate, documentation-specific projections. 

Transition Matrix Design 

The transition matrix tracks loans across delinquency states — current (0), one-month delinquent (1), two-month delinquent (2), foreclosure (F), and REO (R) — with additional granularity for delinquency history.

Back-Testing Results 

Initial back-testing of the 30-day delinquency transition demonstrates that the model captures the overall trend in Non-QM credit performance well across all four documentation types. The COVID period was intentionally excluded from model training — including it would have caused extreme unemployment levels to dominate the model and distort sensitivity to other risk factors. 

Figure 5: NonQM Credit Model — Current to 30DPD Transition: Actual vs. Projection by Documentation Type 

A dedicated webinar covering CM 7.1 in detail is planned for end of May or early June. Please stay tuned. 

Housing Turnover Analysis: Rate Sensitivity at Positive Refinancing Incentive 

Shane Lee from the Quantitative Modeling team presented new research on housing turnover behavior in a positive refinancing incentive environment. 

Background 

Total prepayment has two components: housing turnover (prepayment driven by home sales) and refinancing. In current model design, housing turnover is assumed to be weakly rate sensitive — and in the positive refinancing incentive regime, sensitivity is held at zero. The question the team set out to answer: is that assumption correct? 

Data Sources 

  • NAR: National Association of Realtors (NAR) Existing Home Sales — measures the number of homes sold including single-family, condo, and co-op properties (including sales without mortgages) 
  • Equifax ADS: Equifax ADS Data — tracks trade lines per consumer, allowing the team to identify housing turnover by flagging cases where an existing mortgage closes and a new mortgage originates at a different ZIP code for the same borrower 

Figure 6: ADS vs. NAR Data Comparison — Prepaid Mortgages vs. Home Sale Units 

Key Finding 

During the post-COVID refinancing boom, housing turnover activity increased significantly — by almost 50% above the baseline level. This elevated turnover coincided with the period of low rates and high refinancing activity, driven in part by the work-from-home migration wave. 

Figure 7: Housing Turnover CPR — ADS Data (nearly 50% above baseline during COVID refi boom) 

This finding suggests that housing turnover is more rate-sensitive in a positive refinancing incentive environment than current models assume — a potential source of underestimation when projecting prepayment speeds in a low-rate environment. Research is underway to incorporate this into Prepayment 4.0. 

Macroeconomic Update: April 2026 

Federal Reserve — No Rate Cuts Expected in 2026 

CME FedWatch futures currently indicate no Federal Reserve rate cuts this year. The overall expectation is that the Fed funds rate (currently 350–375 bps) will remain unchanged through year-end 2026. 

Figure 8: Federal Funds Target Range — Upper Limit (Source: FRED) 

Mortgage Rates — Elevated and Volatile 

Mortgage rates hit a six-month high in March, with Freddie Mac’s primary rate reaching 6.45% and Mortgage News Daily data showing rates approaching 6.64%. Rates have since pulled back modestly as some geopolitical uncertainty subsided. The 10-year Treasury rate is expected by market consensus (econforecasting.com) to remain above 4% for the next three to five years — implying mortgage rates are unlikely to fall significantly below 6%. 

Figure 9: 10-Year Treasury Yield — Historical and Market Consensus Forecast 

Figure 10: Primary Mortgage Rate Trend 

Unemployment and Inflation 

  • March unemployment rate: 4.3% — trending upward 
  • PCE (excluding food and energy): approximately 3% — still above the Fed’s 2% target 

Figure 11: Unemployment Rate 

Figure 12: PCE Inflation (ex. Food & Energy) 

Consumers continue to face pressure from elevated gasoline and oil prices. Credit card balances have risen significantly over the past two years, adding to the financial strain on households. 

Home Prices — Stabilizing but Elevated 

Home price growth remains positive but has decelerated substantially from the 20%+ year-over-year peaks observed in mid-2022: 

  • Case-Shiller National Index: approximately 1% year-over-year growth 
  • 10-City Composite: slightly above the national index 
  • FHFA All-Transaction Index: somewhat stronger, indicating variation across market segments 

Figure 13: Case-Shiller U.S. National Home Price Index — Year-over-Year % Change 

Two regional case studies highlight the range of outcomes: Austin, TX and Boise, ID both experienced peak growth of 30–35% in 2021–2022, followed by sharp declines through 2023, and are now returning to modest positive territory. Housing supply remains severely constrained. 

Summary 

Topic Key Takeaway 
Prepayment Model Performing well overall; March speeds driven by February rate rally and day count effects 
GNMA Segmentation New FHA/VA split available in Vertex; FHA drift tied to 2025 trial mod policy change 
NonQM Credit Model CM 7.1 on track for end of Q2 2026; dedicated webinar coming end of May / early June 
Housing Turnover Rate sensitivity confirmed in positive refi regime; ~50% above baseline during low-rate period; research underway for Prepayment 4.0 
Mortgage Rates Hit six-month high of 6.64% in March; expected to remain above 6% through 2026–27 
Fed Policy No rate cuts expected in 2026; Fed funds rate at 350–375 bps 
Home Prices Growth slowing (~1% nationally); supply constraints persist 

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.