Register here for next month’s call: Thursday, August 20th, 2026, 1 p.m. ET. 

Key Takeaways 

• Prepayment models remain reliable, but the fast bias showing up in in-the-money cohorts is worth watching if rates keep climbing and more loans move into the money 

• Non-QM credit risk is becoming a bigger focus right as CM 7.1 goes live — the model is arriving just as delinquency trends turn less benign 

• The market has flipped from pricing rate cuts to pricing a hike this year — a real shift in the rate outlook, not noise 

• Elevated rates and mortgage costs look like a multi-year reality rather than a temporary plateau, with labor data adding a note of underlying softness beneath a falling headline unemployment rate 

This month’s call covered prepayment model back-testing, a deep dive on conventional model performance, the growing Non-QM universe, the production release of RiskSpan’s Non-QM Credit Model (CM 7.1), and the latest macro picture. 

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

Prepayment Model Back-Testing 

The prepayment model continues to closely track realized speeds across Fannie, Freddie, and Ginnie collateral. Discount coupons (WAC 5.5 and below) remain structurally low and range-bound at roughly 4–8 CPR, consistent with these loans sitting out of the money in a turnover-driven regime. Premium coupons (WAC 6 and above) eased slightly in June, as a 13 bp increase in the driving mortgage rate outweighed a 5% rise in day count — visible in a modest month-over-month flattening of the conventional S-curve. FHA/VA aging-ramp peaks have also come down from prior levels, with VA loans continuing to ramp faster and higher than FHA. 

Conventional S-Curve Flattening MoM 

FHA/VA Aging-Ramp Peak Declined 

Conventional Deep Dive 

A closer look at FH30 and FN30 performance found the model running fast versus actuals in June — a bias of roughly 1 CPR — with month-over-month direction captured well but magnitude off: the model overreacts in out-of-the-money cohorts and underreacts in in-the-money cohorts, where its error is markedly larger (~2 CPR vs. ~0.8 CPR). 

Curtailment and buyout activity move in opposite directions over a loan’s life. Curtailments are front-loaded, peaking in the newest vintages and fading with age, while buyouts build slowly and grow as loans season and credit stress accumulates. The effect is large: comparing 2023 to 2025 vintages in higher-coupon cohorts, Freddie Mac loans show roughly 7x the buyout activity, and Fannie Mae loans show roughly 3x. 

Non-QM Universe and Credit Model 7.1 

Non-QM issuance is tracking toward roughly $100B for 2026 — Q2 came in around $27B, down 16% quarter-over-quarter but up 58% year-over-year — with originations running at about $170–180B. Delinquency data gave a mildly encouraging signal, with the 2023 vintage appearing to plateau around 24 months of loan age, though risk stays concentrated in bank-statement and self-employed borrowers and lower FICO bands. Zooming out, delinquency has been climbing across consumer credit broadly (subprime auto, personal loans, mortgage, Non-QM) since 2021. 

Non-QM RMBS Issuance and 2026 Trajectory 

Consumer Credit Delinquency by Product Type 

Against that backdrop, RiskSpan’s Non-QM Credit Model — CM 7.1 — has moved into production and is now available to all clients. It runs four independent transition models by documentation type (Bank Statement, DSCR, Full Doc, Other), feeding into a single liquidation-timeline and severity model recalibrated to current Non-QM performance. 

CM 7.1 Model Structure 

Macroeconomic Update 

The biggest change this month is at the Fed. A couple of months ago the market was pricing in up to two rate cuts this year; CME FedWatch data now show meaningful odds of a hike instead, with the Fed funds rate seen moving from 350–375 bps toward 375–400 bps by year-end. 

Fed Funds Rate to Remain High in 2026 

Longer rates have followed suit. The 10-year Treasury, just above 4.5%, is expected to climb another 20–25 bps toward ~4.9% before easing — but to hold above 4% for a couple of years. Mortgage rates, currently around 6.5–6.6%, are expected to reach as high as ~6.9% by spring 2027 and stay above 6.5% for the next two to three years. 

The labor market sent a mixed signal. June payrolls rose just 57K, roughly half of what was expected, and April/May were revised down a combined 75,000 jobs — pointing to real underlying softness. Headline unemployment actually ticked down to 4.2%, but that came from falling labor force participation (61.5%, the lowest since 2021) rather than hiring; the household survey showed 507,000 fewer people employed. On a brighter note, CPI eased to 3.5% year-over-year and wage growth matched it exactly — the first time in 12–18 months that real wage growth hasn’t been negative. 

Inflation and Unemployment 

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

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

Register here for next month’s call: Thursday, July 16th 2026, 1 p.m. ET. 

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

---

We continue to add additional analytics reports on the RiskSpan 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, June 18th 2026, 1 p.m. ET. 

Key Takeaways 

• Prepayment models continue to perform well; April discount coupon speeds remain stable, driven primarily by housing turnover 

• Premium coupon speeds fell sharply in May factor data as the March mortgage rate sell-off reduced refinancing incentive and flattened the S-curve 

• GNMA premium coupons showed a moderate speed decline but proved more resilient than conventional counterparts 

• Non-QM Credit Model CM 7.1 enters beta testing in June and is targeted for production release around July 10th; a dedicated webinar is planned for the second half of June 

• No Federal Reserve rate cuts are expected in 2026; CME FedWatch now shows a meaningful probability of a rate hike later this year or in early 2027 

• Mortgage rates have climbed back to levels last seen in summer 2025, with the Freddie Mac survey rate at 6.51% and Mortgage News Daily at 6.65% 

• The 10-year Treasury rose approximately 50 basis points since February; market consensus expects it to reach ~4.8% by year-end and remain above 4% for the next 2–3 years 

• CPI inflation rose to 3.8% year-over-year in April; core CPI at 2.8% — both well above the Fed’s 2% target 

• Home prices stagnating nationally (~0.67% YoY per Case-Shiller); San Francisco has turned negative while New York continues to grow at ~4.8% 

• Consumer stress deepens: low- and middle-income households carry credit card debt roughly 3x their monthly spending at ~23% APR; buy now, pay later obligations add further hidden risk not captured in credit bureau data 

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

Prepayment Model Back-Testing: May 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) 

April speeds for Fannie/Freddie discount coupons remained relatively stable. Because these lower-coupon loans carry little to no refinancing incentive, 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) 

Premium coupon speeds fell sharply in the May factor data, reflecting the March mortgage rate sell-off. Rising rates reduced refinancing incentive and caused a notable flattening of the S-curve. The May S-curve sits meaningfully below both the April curve and the long-run historical average (January 2014–May 2026), with the gap widening at higher incentive levels. A diminishing media effect in the May cohort contributed to the flatter shape. 

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

Figure 3: EDGE Historical Performance — FN/FH S-Curve (Refi Incentive vs. CPR) 

GNMA — Discount and Premium Coupons 

GNMA collateral showed a similar pattern. Discount coupon speeds remained supported by turnover activity, while premium coupon speeds saw a moderate decline consistent with the higher-rate environment. Notably, GNMA premiums proved more resilient than their conventional counterparts when compared against the conventional S-curve, reflecting structural differences in the GNMA borrower population. 

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

Non-QM Credit Model: CM 7.1 Update 

CM 7.1, RiskSpan’s new Non-QM Credit Model, is on track to enter beta testing in June with a targeted production release around July 10, 2026. A detailed webinar covering the model will be held in the second half of June. 

Model Structure 

CM 7.1 uses the same three-stage architecture as RiskSpan’s agency credit model: 

• Transition Models (four, one per documentation type) — each independently estimated 

• Bank Statement 

• DSCR 

• Full Doc 

• Other 

• Liquidation Timeline Model — applied once a loan enters default 

• Severity Model — estimates final losses on the defaulted balance 

Each documentation type is modeled independently at the transition stage, then fed into a unified liquidation timeline and severity model. This segmentation reflects meaningfully different performance characteristics across Non-QM documentation types. 

Figure 5: CM 7.1 Model Structure — Four Transition Models Feed into Unified Liquidation and Severity Models 

Macroeconomic Update: May 2026 

Federal Reserve — No Rate Cuts Expected; Hike Risk Emerging 

The Fed funds rate remains at 350–375 bps. CME FedWatch futures indicate it is highly unlikely to be cut in 2026. More notably, the conditional probabilities have shifted over the past 4–6 weeks to reflect a meaningful likelihood of a rate hike in the latter part of 2026 or early 2027. With persistent inflation and a new Fed chair, the market sees little room for easing. 

Figure 6: Federal Funds Target Range — Upper Limit (Source: FRED) and CME FedWatch Conditional Probabilities 

Treasury Yield Curve — Significantly Higher Than February 

The Treasury yield curve has shifted materially upward since the February 2026 trough, when the 10-year yield was at its lowest recent level and mortgage rates briefly approached 6%. Since then: 

• The 10-year and 30-year Treasuries rose approximately 50 basis points 

• The 2-year Treasury rose approximately 75–80 basis points 

• As of May 21, the 10-year Treasury stood at approximately 4.60% 

This move is attributed to geopolitical dynamics (including the situation around Iran) and a declining global appetite for U.S. Treasuries, with recent auctions clearing at progressively higher yields. Market consensus projects the 10-year to reach approximately 4.8% by December 2026 and to remain above 4% for the next 2–3 years. 

Figure 7: Treasury Yield Curves — January through May 2026 

Mortgage Rates — Back to Summer 2025 Levels 

Mortgage rates have given back much of the progress made earlier in the year. As of the call date, the Freddie Mac primary survey rate was 6.51% and the Mortgage News Daily rate was 6.65% — levels last seen in August 2025. The expectation is that mortgage rates will remain at or above 6.25% for the foreseeable future, with a sub-6% rate considered unlikely in the near term. 

Figure 8: 10-Year Treasury Yield Forecast and Primary Mortgage Rate Trend (Mortgage News Daily, MBA, Freddie Mac) 

Inflation — Staying Elevated 

The April 2026 CPI print came in at 3.8% year-over-year; core CPI (excluding food and energy) ran at 2.8%, well above the Fed’s 2% target. The PCE index was not yet published at call time but was expected to confirm continued inflationary pressure. Combined with stable unemployment, this leaves the Fed with limited flexibility to ease. 

Figure 9: PCE Inflation (ex. Food & Energy) and CPI — Year-over-Year % Change 

Home Prices — Stagnating, with Pronounced Regional Variation 

National home price growth has slowed to near-zero. The Case-Shiller National Index showed approximately +0.67% year-over-year as of February 2026, while the 10-City Composite came in at +1.74%, suggesting urban markets are modestly outperforming. Regional divergence is pronounced: San Francisco has recorded negative price growth for approximately the past six months (-0.34% YoY), while New York remains solidly positive at +4.78%. 

Figure 10: Case-Shiller National and 10-City Composite Home Price Indices — Year-over-Year % Change 

Figure 11: Case-Shiller San Francisco and New York Home Price Indices — Year-over-Year % Change 

Consumer Stress: Evidence from Credit Card Spending 

This month’s call featured a deep dive into consumer financial stress, drawing on research from the Federal Reserve Bank of Boston. The analysis is particularly relevant to mortgage credit risk given evidence of rising delinquencies in FHA and Non-QM collateral. 

Credit Landscape 

Agency loans (excluding FHA) continue to show low delinquency rates with no significant deterioration. FHA, however, is exhibiting elevated delinquencies that remain high even after accounting for the trial modification policy introduced in October 2025, which holds more loans in delinquent states during the modification process. The Non-QM universe has also begun to show a rising delinquency trend over the past 12–18 months. 

Boston Fed Analysis: Spending and Debt by Income Group 

A study from the Federal Reserve Bank of Boston segments credit card behavior across three income cohorts and reveals a striking disparity between spending levels and outstanding balances: 

• Low-income ($0–$39K): monthly spending ~$25B vs. revolving debt ~$80B — a 3x ratio; this group is primarily revolving rather than paying off balances 

• Middle-income ($59K–$83K): spending ~$37B vs. debt ~$105B — also approximately a 3x ratio 

• High-income ($121K+): spending ~$170B vs. debt ~$185B — roughly 1:1, consistent with transactor behavior (spend and pay off monthly) 

Low- and middle-income households are therefore carrying roughly three months’ worth of spending as permanent revolving debt, at credit card APRs recently running around 23% on new issuances. Total credit card outstanding nationally has reached approximately $1.25 trillion. 

Figure 12: Aggregate Credit Card Spending by Income Group, January 2015–May 2025 (Source: Boston Fed / Federal Reserve Y-14M) 

Figure 13: Aggregate Credit Card Debt by Income Group, January 2015–April 2025 (Source: Boston Fed / Federal Reserve Y-14M) 

Buy Now, Pay Later: An Untracked Risk 

Buy now, pay later (BNPL) services have grown rapidly and appear to be used disproportionately by lower-income households. Because BNPL obligations are not reported to credit bureaus, they represent an invisible liability not reflected in standard debt figures. The team flagged this as a developing risk to monitor, particularly for its potential impact on borrower liquidity and mortgage performance in the FHA universe. 

Summary 

Topic	Key Takeaway
Prepayment Model	Performing well overall; April discount speeds stable (turnover-driven); May premium speeds fell sharply on March rate sell-off and S-curve flattening
GNMA Performance	Discount speeds supported by turnover; premium speeds declined moderately but more resilient than conventional counterparts
Non-QM Credit Model	CM 7.1 beta in June; production release ~July 10; dedicated webinar in second half of June
Mortgage Rates	Freddie Mac at 6.51%; Mortgage News Daily at 6.65%; back to summer 2025 levels; sub-6.25% rate unlikely near-term
Fed Policy	No cuts expected in 2026; CME FedWatch shows meaningful probability of hike later in 2026 or early 2027
Treasury Yields	10-year up ~50 bps since February; 2-year up ~75–80 bps; consensus at ~4.82% by year-end
Inflation	CPI 3.8% YoY (April); core CPI 2.8%; PCE similarly elevated; well above 2% target
Home Prices	National ~+0.67% YoY; San Francisco negative; New York +4.78%; highly geography-dependent
Consumer Stress	Low/mid-income households revolving 3x monthly spending at ~23% APR; BNPL obligations add hidden risk; FHA and Non-QM delinquencies trending higher

---

We continue to add additional analytics reports on the RiskSpan 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, 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

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Register here for next month’s call: Thursday, April 16th, 2026, 1 p.m. ET.

Key takeaways from this month’s call: 

• Non-mortgage credit is deteriorating more rapidly than mortgage credit 

• BNPL usage may be masking underlying financial strain 

• Macroeconomic conditions are likely to remain restrictive, reinforcing current trends 

• Prepayment models remain well-calibrated, even as borrower behavior begins to shift 

You can read the recap below or click here for the entire 20-minute recording.  

Credit Performance by Asset Class 

The data shows a clear divergence between mortgage and non-mortgage credit: 

• Mortgage delinquencies remain relatively low, supported by tighter underwriting standards 

• Credit card delinquencies have increased meaningfully since 2022 

• Auto loan delinquencies are approaching levels observed during the Global Financial Crisis, particularly among younger borrowers  

The following charts from NYFed illustrate how younger age cohorts are consistently exhibiting higher delinquency rates across credit types (mortgages, credit cards, and autos). 

BNPL Usage as a Potential Blind Spot 

Buy Now, Pay Later (BNPL) usage continues to expand. 

Adoption is highest among younger borrowers. 

A meaningful portion of usage is for essential expenses such as groceries  

Because BNPL obligations are not consistently captured in traditional credit metrics, they may obscure underlying levels of consumer leverage and stress. 

Macroeconomic Outlook: Rates Expected to Remain Elevated 

The macroeconomic environment continues to support a “higher-for-longer” rate outlook. 

• Market expectations suggest no Federal Reserve rate cuts through 2026. 

• The 10-year Treasury rate is expected to remain above 4% over the next several years. 

• Mortgage rates, after declining earlier in 2026, have risen again and are expected to remain near or above 6%. 

At the same time: 

• Inflation remains above target levels 

• Unemployment is trending upward  

These conditions suggest a continued tightening backdrop for borrowers, with limited relief from monetary policy in the near term. 

Housing Market: Moderation Continues 

Home price growth remains positive but has slowed: 

• Case-Shiller index shows modest annual growth (~1.3%) 

• FHFA index indicates somewhat stronger growth (~3.3%)  

Differences between indices suggest variation across market segments, with relatively stronger performance in more affordable segments and geographic differences on home prices. 

Prepayment Trends: Stable Performance with Emerging Shifts 

Against this macro and consumer backdrop, prepayment behavior continues to evolve. 

• Prepayment models remain closely aligned with realized speeds across FN/FH and GNMA collateral, as shown in the coupon-level comparisons.  

• Refinance behavior is well captured, including sensitivity to changes in mortgage rates.  

There are, however, early indications of shifting borrower behavior: 

• Prepayment speeds increased in February despite fewer collection days, suggesting a gradual weakening of the mortgage rate “lock-in” effect.  

• Short-term rate increases may moderate this trend, but the directional change is notable. 

GNMA Segmentation Enhancements 

The introduction of FHA and VA segmentation in GNMA back-testing provides additional analytical detail. 

FHA performance shows some divergence, likely reflecting recent policy changes affecting delinquent loan buyouts. 

VA results are more sensitive to spread assumptions and can be adjusted to align with market conditions. 

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Register here for next month’s call: Thursday, March 19th, 2026, 1 p.m. ET. 

In this month’s Models & Markets call, RiskSpan’s quantitative modeling team tackled: 

• The record debt levels now carried by U.S. households (and the consumer stress that is building beneath the surface); 

• The likely persistence of higher rates; 

• RiskSpan’s forthcoming non-QM credit model, and; 

• (as always) how RiskSpan’s prepayment model is performing 

You can read the recap below or click here for the entire 20-minute recording.  

$18 Trillion in Household Debt (and Growing) 

 U.S. household debt reached $18.8 trillion at the end of 2025 and continues to climb. Mortgages account for the largest share at roughly $13 trillion, with auto loans, student loans, credit cards, and HELOCs making up the balance. 

Using conservative assumptions for average interest rates for each category, we estimate that these balances equate to roughly $1.1 trillion in annual interest payments and $2.5 trillion in total annual debt service payments – the approximate cost required each year just to keep households current. 

A Distributional Problem

The aggregate debt figure masks meaningful stress at the lower end of the income spectrum: 

• A median household (~$80K gross income) may devote roughly 37% of disposable income to debt service. 

• Bottom-quartile households (~$32K gross income) may spend 40–55% of disposable income servicing debt. 

Lower-income households are disproportionately exposed to higher-rate revolving credit and subprime auto loans, as opposed to 3–4% fixed-rate mortgages. The averages therefore understate the severity of strain on the more vulnerable segments. 

Are Reported Delinquencies Understating Stress?

Delinquencies are rising across income levels, particularly in lower-income areas. Lenders, however, may be quietly modifying or re-aging loans, particularly in consumer credit categories (e.g., auto loans). Such modifications can: 

• Push missed payments to the back of the loan 

• Reset accounts to “current” status 

• Avoid immediate charge-offs 

While this suppresses reported delinquency statistics, borrower balances may continue to grow. This implies that reported delinquency rates may really be more of a floor, as aggregate DSCR and household stress may be greatly understated. 

Consumer strain is real and potentially worse than what is suggested by the headline metrics. 

Coming in Q2: RiskSpan’s Non-QM Credit Model! 

RiskSpan’s forthcoming non-QM credit model will feature four distinct documentation categories: 

1. Bank Statement 

2. Full Documentation 

3. DSCR/Investor 

4. Other (e.g., VOE, asset depletion) 

Each segment is modeled independently through a transition-matrix framework covering: 

• Current 

• 30-day DQ 

• 60-day DQ 

• 90+ DQ 

• Termination (voluntary and involuntary) 

Prior delinquency figures prominently in the model, with clean loans having relatively low base transition rates from current to delinquent, while loans with prior delinquency history can experience transition probabilities up to 10x higher. Capturing this conditional risk dynamic is central to the model’s design. 

Back-testing (shown below for the Full Doc segment) indicates the model is tracking historical delinquency transition rates reasonably well, though development remains ongoing.

Macro Considerations

Consistent with prior months, the macro backdrop continues to reinforce a “higher-for-longer” rate environment. 

Fed and Policy Outlook 

• Fed Funds expectations imply limited cuts in 2026. 

• No immediate expectation of a March rate cut. 

10-Year Treasury 

• Consensus forecasts suggest the 10-year Treasury will remain above 4% for the next 2–3 years. 

• Recently, it has hovered around ~4.1%, down slightly from prior highs. 

Mortgage Rates 

Primary mortgage rates are approaching 6%, but not sustainably breaking below it. In our view, mortgage rates are likely to remain around or above 6% through 2026, possibly into 2027. 

Labor, Inflation, and Home Prices 

• Unemployment ticked down slightly. 

• Job creation surprised to the upside. 

• Inflation remains sticky in the 2.5–3% range  

• National home prices showed modest year-over-year growth (~1.4%). 

Traditional seasonal adjustments may be less reliable in today’s inventory-constrained housing market. Turnover seasonality appears to be shifting earlier in the year, with implications for both pricing and prepayment dynamics. 

Prepayment Model Performance: Stable & Improving

Despite macro headwinds and rising consumer stress, RiskSpan’s prepayment models continue to perform well. 

GSE Discounts (WAC 5.5 and Below)

Prepayments declined slightly in the most recent month, primarily due to fewer collection days and normal January seasonality (lower turnover). Overall model fit remains strong. 

One identified refinement: the model’s seasonal peak appears slightly delayed (June/July shifting toward August). This will be addressed in the next version update 

GSE Premiums (WAC 6 and Above)

Refinance speeds have been largely unchanged over the past two months. S-curve comparisons between December and January show no material differences once recount adjustments are made. A modest ~1.5 CPR change in recent data appears driven by turnover rather than refi activity.

Ginnie Mae: FHA vs. VA Enhancement

Performance across Ginnie segments remains solid, with recent prepayment dips again attributable to fewer collection days. However, we have observed divergence between FHA and VA: Modeled FHA speeds tend to be overestimated, while modeled VA speeds tend to be underestimated compared to recent historicals.

To address this, RiskSpan is adding a loan guarantor filter to the back-testing report, enabling FHA and VA splits (expected early March). This enhancement will improve transparency and precision in Ginnie performance analysis.

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 Register here for next month’s call: Thursday, February 19th, 2026, 1 p.m. ET. 

In the January Models & Markets call, our quantitative modeling team hosts their first monthly deep dive of the year into prepayment model performance, an updated analysis of second liens and HELOCs using Equifax data, and the evolving macroeconomic backdrop shaping mortgage markets. 

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

(Click here for the entire 20-minute recording or continue reading for a summary.)  

Revised HELOC and HEL Results Using Equifax ADS Data

  We performed a comprehensive analysis of second liens and HELOCs using Equifax’s Analytic Data Set (ADS), which represents a 10% anonymized sample of U.S. consumer credit data at the tradeline level. 

Following the resolution of data quality issues identified in an earlier analysis, the revised results now align much more closely with economic intuition. Prepayment speeds behave consistently across vintages, credit score bands, and refinancing regimes. 

One key takeaway holds that higher credit score borrowers tend to prepay faster, particularly during refinancing waves, while lower credit score segments remain slower. This pattern is especially evident in post-COVID vintages. Overall credit quality for HELOCs and second liens remains strong, with performance clustering closer to the highest credit score bands. 

Another notable observation is the role of seasonality in newer HELOC vintages. In a high-rate environment with limited refinancing activity, turnover-driven prepayments become more prominent. Baseline prepayment speeds for HELOCs are running around 15 CPR, higher than what is typically observed in first-lien portfolios under similar conditions. These dynamics provide useful signals for understanding how first-lien behavior may differ when second liens or HELOCs are present on the same property. 

  We plan to expand this analysis further, including deeper investigation into correlations between first- and second-lien prepayment behavior. 

Mortgage Rates Remain Likely to Stay Higher for Longer 

The broader economic outlook remains one of persistence rather than relief. Federal Reserve projections point to unemployment stabilizing around the low-4% range and real GDP growth near 2% over the medium term. Meanwhile, expectations for the fed funds rate suggest limited room for significant cuts beyond 2026. 

Longer-term rates tell a similar story. Consensus forecasts indicate the 10-year Treasury is unlikely to fall meaningfully below 4% over the next two to three years, implying mortgage rates are likely to remain near (and potentially above) the 6% level for much of the period ahead. Temporary dips tied to policy announcements or market events have proven short-lived, with rates quickly reverting back toward recent levels. 

Consumer Stress Continues to Build 

While headline spending remained strong during the most recent holiday season, the composition of that spending tells a more cautious story. Consumers increasingly favored lower-cost retailers, suggesting budget sensitivity and selective spending behavior. 

Survey data reinforces this theme. Year-over-year consumer sentiment and expectations have declined meaningfully, and perceptions of job insecurity (particularly among college-educated workers) have become more negative. These dynamics could have important implications for credit performance and housing activity as economic uncertainty persists. 

Prepayment Model Performance: v. 3.7 Continuing to Track Market Performance Well 

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

RiskSpan’s Prepayment Model v3.7 continues to demonstrate strong performance across collateral types. Recent back-testing shows that model projections remain closely aligned with realized speeds, even as seasonal effects and calendar nuances influence month-to-month results. 

For conventional 30-year loans with lower coupons, December’s modest uptick in observed CPRs was largely attributable to four additional collection days relative to November. After adjusting for day count effects, actual prepayment speeds continue to trend lower, consistent with expectations in a higher-rate environment. 

Premium cohorts also remained largely stable. Despite a brief decline in mortgage rates late last year, the move was insufficient to trigger a meaningful new refinance wave. Most refinance-eligible borrowers have already acted, and the refinancing “pull-forward” effect appears largely exhausted. This dynamic is also visible in the S-curve, which has flattened back toward historical averages after October’s temporary acceleration. 

Agency collateral shows similar patterns. Ginnie Mae discount cohorts tracked model expectations closely, while premium cohorts remained flat. One area of ongoing refinement is deep in-the-money, very high-coupon Ginnie Mae loans, where actual speeds have run slightly slower than model projections as refinance incentives flatten out earlier than in prior cycles. 

Looking Ahead 

In summary: 

• RiskSpan’s Prepayment Model v3.7 continues to perform well across most collateral segments 

• HELOC and second-lien analysis using Equifax data now shows economically intuitive and stable results 

• Mortgage rates are likely to remain near 6% in the absence of a major macro shock 

• Consumer behavior is showing increasing signs of stress and caution 

• RiskSpan plans to release additional analytics later this year, including a new non-QM credit model in the first half of the year and a next-generation prepayment model in the second half. 

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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.