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Key Takeaways 

  • Prepayment model continues to perform well; discount coupon speeds (WAC 5.5 and below) remain stable across Fannie/Freddie and GNMA, driven by housing turnover 
  • Premium coupon speeds (WAC 6.0+) declined as elevated rates reduced refi incentive; UPB rising steeply on new gross issuance of low-seasoning loans 
  • FN/FH S-curve has flattened materially from April to June; GNMA saw similar compression but at tighter intervals and with less magnitude 
  • Non-QM prepay speeds declined across all doc types in May remits; Non-QM DQ60+ rates ticked down marginally 
  • Non-QM Credit Model CM 7.1 in beta; available July 15; dedicated webinar coming before release 
  • Fed held rates at June 17–18 meeting; year-end expectation shifted to 375–400 bps; meaningful probability of a hike as early as September; dot plot revised to 3.8% for 2026 
  • Mortgage rates near 6.5%, back to summer 2025 levels; 6% viewed as 2026 floor; 10-yr TSY expected above 4% for years 
  • CPI at 3.8% YoY, real wage growth -0.4% (first negative since 2022); U-6 underemployment at 8.1% 
  • Home prices near-flat nationally (+0.67% YoY); inventory-constrained, not demand-driven; significant geographic divergence 

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

Prepayment Model Back-Testing: June Factor Data Update 

The prepayment model continues to track realized speeds closely across Agency collateral (results available in Edge under Vertex). The June factor data captures May remittances. 

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

Model CPR closely tracks observed CPR, confirming the model is well-calibrated in the turnover regime. With minimal refi incentive at current rate levels, prepayment activity is driven almost entirely by housing turnover, which has held steady. 

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

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

Premium speeds declined due to elevated mortgage rates and fewer day counts in May vs. April. UPB is also rising steeply, reflecting gross issuance of newly originated loans with limited seasoning that further dampens prepay. The S-curve flattening tells the fuller story: comparing April, May, and June factor months, the curve has collapsed from the April peak (green), with borrowers responding progressively less to the same level of refi incentive. 

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

Figure 3: FN/FH S-Curve Flattening — April, May, and June Factor Months 

GNMA — Discount and Premium Coupons 

GNMA discount speeds remain supported by turnover. Premium speeds are declining but proved more resilient than conventional — approximately 14% reduction vs. 24% for Fannie/Freddie. The GNMA S-curve is compressing, but at tighter intervals than the more pronounced slope collapse seen in conventional. 

Figure 4: GN/G2 Discount and Premium Coupon Back-Testing — Model CPR vs. Observed CPR 

Non-QM Historical Performance 

Based on Cotality data through the Edge platform’s historical performance module, capturing the June factor date (May remittances). 

Prepayment Speeds 

Speeds declined across all three major doc types reflecting the rate environment: bank statement 29→22 CPR, DSCR 21→16 CPR, full doc 17→16 CPR. Full doc loans carry a lower WAC (~5.1% vs. 6.9–7.1% for bank statement and DSCR) and are more locked in, though they show a steeper S-curve response when refi incentive is held constant. Many DSCR loans remain within prepayment penalty terms, though 2023 originations with three-year terms are now beginning to exit that window, which could lift speeds going forward. 

Figure 5: Non-QM CPR by Documentation Type (July 2023–June 2026) 

Delinquencies 

DQ60+ rates ticked down marginally in May remits: bank statement ~4%, DSCR ~3%, full doc ~0.72%. A wide gap persists across doc types even after controlling for FICO and LTV. The 2023 vintage remains the highest-delinquency cohort, driven by somewhat looser underwriting and a credit burnout effect — stronger borrowers in that high-WAC vintage have already paid down or refinanced, leaving a residual pool more likely to be credit-impaired. 

Figure 6: Non-QM DQ60+ by Documentation Type (July 2023–June 2026) 

Figure 7: Non-QM DQ60+ by Vintage and Loan Age 

Non-QM Credit Model: CM 7.1 Update 

CM 7.1 is in beta testing and will be generally available on July 15, 2026. A dedicated webinar is planned before the production release. The model uses a three-stage architecture with four independently estimated transition models (Bank Statement, DSCR, Full Doc, Other) feeding a unified liquidation timeline and severity model — capturing the meaningfully different performance characteristics across Non-QM documentation types seen in the historical data above. 

Figure 8: CM 7.1 Model Structure 

Macroeconomic Update: June 2026 

Federal Reserve — On Hold, With a Hike Now on the Table 

The Fed held rates at its June 17–18 meeting (350–375 bps). The big shift is in forward expectations: comparing CME FedWatch probabilities from May 20 to June 17, the likelihood of a rate hike has risen materially, with a meaningful probability of an increase as early as September. Year-end 2026 market expectation has shifted from 350–375 to 375–400 bps. The Fed’s own June dot plot revised the 2026 median funds rate to 3.8%, up from 3.4% in March, as inflation surprised to the upside and strong payrolls data reduce pressure to ease. 

Figure 9: CME FedWatch Conditional Probabilities (May 20 vs. June 17) and Fed Dot Plot 

Rates, Inflation, and Home Prices 

Treasury and mortgage rates: The 10-year TSY consensus forecast peaks near 4.6% by year-end 2026 and stays above 4% for the next several years. Mortgage rates have been notably volatile since late February, climbing from ~6% back to ~6.5% as of mid-June. The team views 6% as the effective 2026 floor. 

Inflation and labor: CPI at 3.8% YoY vs. wage growth of 3.4% produces real wage growth of -0.4% — the first negative year since 2022. U-3 unemployment is 4.3%; U-6 underemployment is 8.1%. Labor force participation is at its lowest since 2021. May payrolls came in at 172K vs. 80K expected but gains were concentrated in leisure/hospitality and local government. The Fed’s June projections raised 2026 PCE inflation to 3.6% (from 2.7% in March). 

Home prices: Case-Shiller National at +0.67% YoY (March 2026); 20-City Composite at +0.83%. Gains appear to be inventory-constrained rather than demand-driven. Geographic divergence is significant — some MSAs are in negative territory, which is a relevant risk factor for Non-QM collateral concentration. 

Figure 10: 10-Year Treasury Consensus Forecast and Mortgage Rate Trend 

Figure 11: Inflation, Wage Growth, and Labor Market Dashboard 

Figure 12: Case-Shiller National and 20-City Composite Home Price Indices 

Summary 

Topic Key Takeaway 
Prepayment Model Performing well; discount speeds stable (turnover-driven); premium speeds declined on elevated rates and fewer May day counts; UPB rising steeply on new gross issuance 
FN/FH S-Curve Materially flatter from April to June; borrowers responding less to refi incentive; newer vintages pulling down aggregate 
GNMA Performance Discount speeds stable; premium speeds down but more resilient than conventional (14% reduction vs. 24% for FN/FH); S-curve compression at tighter intervals 
Non-QM Prepay Bank statement 29→22 CPR; DSCR 21→16 CPR; Full doc 17→16 CPR; rate-driven; DSCR partly shielded by prepay penalty terms 
Non-QM DQ DQ60+ ticked down marginally: bank statement ~4%, DSCR ~3%, full doc ~0.72%; 2023 vintage remains highest-DQ cohort (loose underwriting + credit burnout) 
CM 7.1 Credit Model Beta testing now; available July 15; dedicated webinar before release; four doc-type transition models feeding unified liquidation and severity model 
Fed Policy Held at 350–375 bps (June 17–18 meeting); year-end expectation shifted to 375–400; hike possible as early as September; dot plot revised to 3.8% median for 2026 vs. 3.4% in March 
Rates 10-yr TSY consensus peaks ~4.6% year-end, stays above 4% for years; mortgage rates ~6.5%, back to summer 2025 levels; 6% viewed as 2026 floor 
Inflation & Labor CPI 3.8% YoY; wage growth 3.4%; real wages -0.4% (first negative since 2022); U-3 4.3%, U-6 8.1%; May payrolls 172K vs. 80K expected 
Home Prices Case-Shiller National +0.67% YoY (March 2026); gains inventory-driven, not demand-driven; significant geographic variation with some MSAs negative 

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