July 2026 Mortgage Market Data, New Industry Trends & Virtual Economist Forecasts | 8.11.26

Alex Hebner (: 00:18

Welcome to the Optimal Insights Podcast. I'm your stand-in host for today, Alex Hebner. Jim is out on the road and we'll be back next week. We have a great show planned for today, the usual economic update led by myself with James Cahill at the helm as well, followed by the Market Advance report with Mike Vough and Brennan O'Connell. If this is your first time listening to the Optimal Insights Podcast, we're here to make sure that you know what to watch as mortgage market originator, someone in the capital markets department, or just someone that's interested in rates, the mortgage industry.

Or some great market commentary. Before we jump into the economic update, a few headline numbers to keep an eye on. The OB MMI, the Autumn Blue Mortgage Market Index, on Friday recorded an average 30-year rate of 6.64%. And as of Monday, August 10th, the 10-year Treasury was yielding about 4.7%. With that being said, let's jump into the economic update.

Alex Hebner (: 01:09

Welcome everyone to the Optimal Insights Economic Update for August 10th, 2026.

we can hop right into it. I think what what James and I were talking about before we began the call here with the last week's unemployment numbers, the non-farm number, first Friday of the month. James, what what was the big takeaway and and where did the number land?

James Cahill (: 01:31

Yeah, leading into last Friday, right? We did have a couple of pieces. So ADP came out on Wednesday. ADP is it's another measure of employment. It generally looks at payrolls. So how many new payrolls do we have? People who are technically you know on payroll, getting something. the number was expected at around a hundred thousand and it came in disappointing at forty-four thousand.

ADP is generally used as kind of a leading indicator for what might happen in the jobs report. So the market responded by kind of expecting a a lower return on the jobs. Thursday came around and we got initial jobless claims. There was a little bit of will they, won't they with this number. Previously we've been at a twenty-year low. with bad the lower ADP number, what were we gonna see here was kind the question.

Weekly jobless actually came in higher or better than expected. So still below 200K. So still pretty near a record low for those who are requesting unemployment insurance for the first time.

So these two were kind of competing numbers. it led to a little bit of a fuzzy expectation for Friday. There was a lot of back and forth on rates, but Friday the actual unemployment numbers came in and they came in well below expectation. So the expectation was sitting at about

83,000 jobs being added. We came in with a loss of 23,000. So 100,000 job difference going you know, not gains, losses, so actually shrinking the labor force definitely in the wrong direction. this has led to a real back and forth on Friday as the market tried to wrestle with what this means. We'll talk about

inflation in a minute. But, you know, as we've been saying, the Fed's been looking at, hey, can we raise interest rates? Can we keep them where they are? As long as jobs are still pretty stable. we were looking at a hike. It was pretty certain that we were going to get one in September. But with this latest report,

That is thrown very much into question. Looking at the CME, the odds of a September rate hike are now at about 45%. Previously they were closing in on 80%. So it really did cause an adjustment. Friday was definitely a day to be hedged and be actively moving.

Alex Hebner (: 04:00

Absolutely no, that it's very interesting. And like I said, we were trying to square the circle of as you said, we saw a non-farm headline number of minus twenty-three thousand jobs. at the same time, though, we saw the unemployment rate improve, headline number from four point two percent down to four point one percent. And and how we can arrive at that is has been the source of our last 10 minute discussion. and that really seems to be the crux of it is that there's there's two different surveys that are really being published.

in this one release. you have the non-farm survey, which is showing how many the job creation, and then you have a separate survey that's looking at the labor force participation rate. And you know what we might be seeing here is each of these have a their own separate sample. And if you have an an upbeat labor force participation that shows that it's not contracting all that much, but you have a downtrodden jobs number,

that can play with the numerator and the denominator in such a way that you could see an improvement in the unemployment rate at the same time as net loss of jobs over the course of a month.

James Cahill (: 05:07

Yeah, you and I were passing this back and forth for a minute because the the unemployment rate is measured in a few ways. there are

People who have recently lost their jobs, there are those who have who are employed but are technically underemployed. So if if Alex was to lose his job tomorrow and go driving for Uber Eats, you know, you're more qualified than that. You technically have a higher earning potential than that. So you are employed, but you are underemployed. And then there is discouraged workers. So people who have not been searching for a job in the last six months or who have not acquired one in the last 12 have not been searching for

In the last six are technically out. So when looking at those two different surveys, you can see a discrepancy in the number. So it was definitely interesting to see a down employment report, a loss of 23,000 jobs, but an improvement on the unemployment rate. It seems to say that those of us participating in the US economy.

has improved. So while some people have lost their job, the number of people who are considered underemployed or are not searching is a an improvement.

Alex Hebner (: 06:17

Definitely. And and that's always something I feel like to keep in mind. When we're talking about the unemployment rate, the one that you see broadcast all over TV, that's the that's the U three unemployment rate. And I think to really get a holistic picture of the labor force in America, you should one, be checking that U six number. The U six number includes those discouraged but not out of the labor force individuals. so that they're still counted in the denominator, but not necessarily the numerator when it comes to the U three number. in addition to that, always just be keeping an eye on those that are

underemployed, they they call it part-time for economic reasons in the non-farm numbers. and that number right now is about four point eight million. So, you know, not even just looking at the labor force, but you know, well over one percent of Americans in the labor force consider themselves part-time and they would prefer more full-time work. so really just to just to round out your understanding of the labor labor force, I would I would I would point you to those two to begin that that journey.

James Cahill (: 07:12

There wasn't too much you know economic news last week outside of the jobs report, normally a a large enough item. obviously the most important item that everyone is looking at is the war. There was some rumor that there may be an impending deal coming Wednesday of last week that is yet to materialize. So oil took a

Trended its price down on this rumor, but it started to come back up a little bit this week. We're floating at about $85 a barrel as of recording. The average gas price in United States is $4 a gallon. And I was getting a kick out of looking at the best and worst. So California is sitting at five dollars and sixty cents per gallon.

And I was shocked to see Indiana is actually doing the best at about three dollars and forty-eight cents. So I'm gonna have to look this up afterwards if Indiana has oil wells that I wasn't aware of how they're keeping that so low. But three dollars and forty cents, not too bad. Average of four. It's higher than anyone wants it to be, but it's certainly not the worst average that we've seen this year or in the past decade.

Alex Hebner (: 08:29

Definitely, definitely. It's it's four Maya up in New York right now, here in the city. yeah, Indiana, that's a good one. I I'll have to look into that. I'd imagine perhaps they have lower fuel taxes or something that's helping to alleviate

James Cahill (: 08:41

Mm.

Alex Hebner (: 08:42

some of that pain. 'cause 'cause I'm with you. I I'm not too familiar with any oil sands or oil drilling that that's going on in Indiana, but I do know that they're

relatively close when it comes to to the Midwest to to Oklahoma, and and piping from from one of those those oil rich locations we have here in the United States. as well as the Dakotas. but that's that's that's getting far off topic outside the purview of this podcast. as much as I'd love to record a special episode on natural resource allocation in the US

James Cahill (: 09:12

Ha ha.

Alex Hebner (: 09:16

but no, no you're right. Yep, oil kinda bottomed out last week. We're seeing it creep back up again.

Energy costs are definitely gonna be, I think, even before this conflict, I predicted energy costs with the AI revolution and data center demand is going to be a hot button political issue, probably beginning with this election cycle and into next year. or rather in in the coming years, and and just the the need for more power that is constant right now throughout our economy. what else is there to say on that issue?

It's just been ticking back up. I think one thing to note is is I think some of the pain that, you know, our allies have felt around the world, whether that's in Asia or in Europe, has been so far blunted one in the US by our natural resource allocation, in addition to the strategic petroleum reserve, which has been getting slowly drawn down over the course of this conflict. some longer term concerns there around, you know, bringing that down to to, you know, critical levels.

and what the plans are to re refill that. I was reading something over the weekend that you know, that those that have been, you know, taking out allocations from the Strategic Petroleum Reserve, the energy secretary has it it's been a system you're essentially taking out this oil on loan and you're expected to repay that loan in, you know, with with interest, barrels of interest, in in one to two years time. So there is a plan to at least, you know, recuperate some of that. I think, you know, that plan hinges

on a resolution to this to this conflict and the higher energy prices. but I I was felt a little bit better that there wasn't a plan a longer term plan in place to to refill that reserve because that that reserve is very key to muting these these shocks that we see sometimes with the oil and energy markets.

James Cahill (: 10:57

Yeah, nice to know that it's not just gonna be footed by the taxpayer entirely.

Alex Hebner (: 11:02

Not entirely, but I'm sure it'll it'll still show up in our bills as well. and at the end of the day we are, you know, mass consumers ourselves.

moving right along beyond all that, into this week, we get the flip side of the coin in regards to the rates picture. we'll get a CPI release on Wednesday, a PPI release on Thursday. Both are expected to to remain not too far off of where they were last month.

PPI was a little bit higher than than CPI last month. I'm hoping to see the PPI come down a bit. CPI expected at a 2.5% number for the core, 3.4% overall, reflective of those higher energy prices that they strip out for the core number. We'll have to see. I think I think it could come in right around where it did last month. Again, energy prices, which are a huge component of everything, really haven't seen it

whole lot of change. Maybe they've trended up a few dollars a barrel since the last release. and some of the hope that was, I think, in the marketplace when they were surveying for that that June number. we'll have to see there. and I I think that'll line us up really well or begin to line us up for the next Fed meeting. The next Fed meeting we will have an another inflation report before then but it should at least give the CME futures something to chew on.

'Cause right it's really a a fifty fifty toss up on on if we're gonna see a rate hike or if they're gonna continue to to pump the brakes and just let this storm hopefully I think their hope is that it might blow over.

James Cahill (: 12:35

Yeah, it I think it actually to me the next job report is kind of the critical one, right? Having seen a a pullback in jobs this time around this month, that is kind of a red flag for the Fed looking at hey

How do we balance this? Inflation is a little bit higher than we want it to be. But even if we do a rate hike, Alex, you're famous for this one. You know, you can rate hike the rates as much as you want. that doesn't create more oil. So,

Alex Hebner (: 13:09

Mm-hmm.

James Cahill (: 13:11

real question, like it's a supply-side issue. If you don't have to hike rates, you know, you can't create the oil, it's better just to hold off for as long as you can. If the jobs are doing all right, you know, then you don't necessarily need to cut rates. but with

One month of negative number, it's not that bad. But looking forward to next month, if we come in and we're negative again, let's say thirty, forty thousand, that is going to look like we're going the wrong way. Even if the unemployment rate stays pretty low, just seeing losses at all is not what the Federal Reserve wants for its dual mandate, and that's gonna put them in a bit of a tough spot. So

You know, the inflation numbers coming out this week. It'll be interesting to see. They'll likely stay where they are, but I think people should keep an eye on this next month's jobs report. I think that that's actually gonna play out to be a critical factor for whether we see a rate hike, a total stay of any movements, or even talk about a cut for the next four months.

Alex Hebner (: 14:15

Absolutely. Absolutely. I think yeah, two two two could be a trend here. And we could see I I I think we all have quickly forgotten how much pressure there was to to lower rates before this conflict with Iran and and how quickly we flipped on a dime there to to worrying about the potential that we might need to raise rates. but but remember that inside of this year I think the majority of the market was behind a cut or two by the end of the year.

James Cahill (: 14:45

Yeah, it's been quite the flip.

Alex Hebner (: 14:48

One other thing that caught my eye before we sign off here and hand ourselves over to the market advantage report. this one just popped across my feed on Friday. it's something we talked about quite a bit at the beginning of the year, talking about Fed independence. the White House requested that Lisa Cook and her her defense team

Procure a letter explaining themselves essentially in regards to the the mortgage fraud allegations that were leveled against her and eventually dismissed by I believe it was the Supreme Court. so that one just kinda popping back into the news. I haven't seen too much rumblings on it quite yet. I think a lot of people would kind of said, Okay, this is now now that a court has ruled on it, this is a, you know, a dead a dead issue. but it does again bring

bring it begin to bring into question, you know, Fed independence, which, you know, the bond market especially has shown deep resistance to. so, you know, we'll see what comes of that. I, you know, at the time of this recording, not attributing too much in the grand scheme of things to it, but just something to keep in mind.

James Cahill (: 15:49

Would hit as well. So it's August 10th, so we're three months out almost to the day for November primaries. So everyone's gonna start hearing about and getting sick of hearing about that. you know, affordability is really the topic that's being pushed right now in this election cycle. So there's just more to come, news stories, items, pieces that might influence the market as we see who is front-running.

Whether the House, Senate might flip what's going to happen there.

Alex Hebner (: 16:21

Absolutely. I think we'll I'm I'm in full agreement. We're fully into election season here in the US and we'll we'll begin to see I think the the headlines begin to reflect you know propositions by different political candidates on on how to alleviate the fears and concerns and of voters. With that being said

I think we'll sign off here for the economic update this week. catch us next week, same time, same place from wherever you're listening from. it's been our pleasure. And we'll hand it over now to Mike Vaux and Brendan O'Connell for the Market Advantage report. Thanks, James.

James Cahill (: 16:57

Thank you much.

Mike (: 16:59

Welcome everyone to the July Market Advantage Data Report. we're excited to bring you guys not only our existing industry leading set of data that we offer for free, we're also adding four new charts that we're really excited about bringing to the industry's attention. We think they're real differentiators in what folks in the capital markets from for US mortgage are really looking for. Brandon, you want to kick us off?

Brennan (: 17:24

Yeah, absolutely. hey folks, welcome back. before I jump into what's new, let's start with the headlines. As usual on volume. So July ticked down a bit from where we were in June. summer buying season starting to sort of come down. So

o five percent versus July of: 2025

month over month. So we were down eleven point six percent in purchase and but still up five point seven percent from the same time a year ago. So the market really being driven by purchase volume right now. And so you see the overall lock volume following where the purchase market's going. Refi activity pulled back during the month, cash outs were down four point seven percent month over month. And essentially flat year over year rate term refines were

% above July: 2025

30 year OBMMI conforming rate finished the month at 6.72%, up 26 BIPS from June and 40 BIPS from three months prior. jumber rates were up 29 bips to 6.69, VA rates 29 BIP rise to 6.32, and FHA rates increased 20 bips to 6.48. 10-year Treasury climbed to four and three-quarters percent. So that certainly didn't help any of the.

Mortgage rates downstream, up 31 bips on the month. And this does bring us into a new chart you'll see in the report when it when it comes out. The Virtual Economist that Optimal Blue talked about and launched at our summit in February it's been in beta for a variety of customers on the Optimal Blue platform. But just this month we are going live with it, and we thought it made a lot of sense to take some of the content that we're getting.

out of that virtual economist and layer it into what we're doing here in the market advantage report. So we have 12 month forecasts now for both the OBMMI 30 year conforming rate as well as the primary secondary spread. And the punchline for it is when we look out 12 months, the virtual economist, which is taking in both optimal blue data as well as many macroeconomic indicators, is forecasting a mortgage rate to be just above 6.5%.

at this same time next year. So really excited to get that live into the market and to have a little bit of a a snippet here in the market advantage report as well. so let's just see a couple other odds and ends. Desp despite the increase in rates, we did see

because of the increase in rates, I should say the ARM utilization ticked up. So we were up at 11 plus percent in July, above the 10% range that we've had most of the last few months. product mix shifting as well. So we're continuing to see this kind of secular decline in conforming volume. We're down to 47% of the total lock volume being for Fanny Freddy eligible loans.

Down 1.3 points from June and nearly five points from a year ago. Not non-conforming share is is really been the beneficiary. It's increased to nearly 21% of all lending, and that includes both jumbo and non-QM. on the non-QM side, we actually for the first time hit double digits officially within our lock volume. So non-QM did cross the 10% threshold. We've been hovering in the eight or nine percent range, but

Again, this this sort of secular trend we're seeing for products with different income verification approaches is really continuing to grow. We're having a lot of conversations with lenders on the subject, and it's reflected in the data here, with us over basically one in ten dollars of production now going through that that channel. property mix continues to favor new housing stocks, so pods, which we we track are a pretty good useful proxy.

For new construction, increased to 29% of total production, which is another point increase. single family detached is still the dominant property type at 63%. And then on the affordability side, I think metrics were relatively stable. So looking at first-time home buyer share there as a bit of a proxy, 44% first-time home buyer for conforming loans, right around 70 for FHA, and then just below 45 for for VA loans. So

You

we've got this tougher rate environment slowing volume overall, but folks are still finding ways to be creative and get loans done and and to get into homes, whether it's through first time home buyer programs or or maybe more esoteric product types like non QM. Mike, what are we seeing on the secondary side? I know you have a handful of new charts to talk about there as well.

Mike (: 22:34

Yeah, thanks, Brennan. I I will I'll follow your lead and knock out the old tried and true charts first and then jump into the new stuff. So for best effort mandatory spread this month, slight declines across the board. We saw the conventional thirty best effort mandatory spread decreased one basis point to thirty basis points. The Govy thirty decreased two basis points to sixteen in the fifteen year dropped another two basis points to forty-one bit. Still pretty healthy numbers there.

our loan sale splits remain the same month over month, which is I think is the first time I've observed that, where mortgage backed security as our loan sale execution option was at 40%, and that was the same as last month. Agency cash window 32%, bulk bidding was at twenty-five, so your bulk aggregator bids, and then the remainder was left to best ever commitments, about two percent there.

our loan sales stats were almost the same as well, with some slight changes. loans sold to the rank one execution increased 100 basis points to from 78 to 79%, where we saw loans sold to rank two basically decrease that same amount. So we saw lenders move back to price as that predominant driver of loan sale execution. we did see servicing rights valuations.

In general, increase this month, which makes sense given rates were generally up over the course of the month. But it was a little muted. We saw on average conventional 30 servicing rights were priced at 1.34 or 538 multiple this month, which is only up two basis points, which is a little less than what I think we would have expected given that on average OBMI was up over the course of the month on our 10 basis points. So a little muted there.

Which could just talk to the general state of rates where they are been elevated for longer. and folks maybe not being as bullish on some of the potential retention options out there today, given the increase in rates. a stat that jumped out to me is that we actually did see our investor count drop to to 13 this month. I don't know if if our listeners remember, it was up about 15.

a couple months ago, which was a recent high. And 13 is actually the lowest that we've seen since December of last year. Now December of last year, we caught this anomaly where it dropped down to eight, which can make sense given the end of the year dynamics of, you know, different investors dealing with balance sheets requirements. so just something to keep an eye on for sure that we saw that that drop a decent amount.

Now onto the three new charts that we've added. this first chart, we've I've been kind of been alluding to this for a while as a trend to watch, is we're actually gonna be showing the percentage of loans in our lenders' pipelines that are eligible for a spec payup or a specified payup. That effectively is an additional value add to the loans based upon their prepayment propensity or default propensity.

You know, the most common example here is for loans under a certain loan amount, they may get an extra incentive from investors or loan originators because that loan is less likely to prepay. Given the appreciation that we've seen in homes across the United States the last 10 years or so, you know, we've seen this amount of loans eligible for a spec payup increase. And that makes sense. The average loan amount that we track at OB is somewhere in that 400K range. Well, now if you're an 85K or a 125K.

5K

mortgage, you're less likely to prepay because the monthly payment savings may not outpace the cash that you have to put up front to actually refi your home, like your closing cost, right? And when closing costs are multiple thousands of dollars, getting that incremental rate savings on a lower loan amount is harder to do.

there's also a variety of other things such as refi taxes in certain state geos and also different LLPA changes such as investment in second homes that that slow that rate of refi, which actually drives investors to want to buy this than your average loan. So we've been tracking this, and you know, this is a number that really stood out to me is now we're at 81% of

of loans that we're we're seeing in our pipelines are actually eligible for a specified payup. And this actually increased a little bit from July where there was a a jump from 80 to 81%. And the largest jump in this case came from the 150 to 250K loan amount band increasing about a percentage point. And so that'll be interesting to watch. and as we've seen more specified payups actually get

put out in the market from Fannie and Freddie and other investors. We're updating this chart. So you'll be able to see a nice story on here of when the less than 400K spec payups were added and the less than 450K spec payups were added.

The next chart that we added was our pipeline and trade composition. So, what this is is we're looking across our lender databases and we're looking at where their loans are slotting from a risk perspective, and then where their trades are slotting from a risk perspective. This is a good way of knowing: hey, what's the most common trade that a lender is using to hedge their interest rate risk? And how does it stack up in comparison to the actual risk of the loans that they have on their books that they're hedging?

And so the big takeaway here for this month is that lenders are really piling into that UM30 five and a half right now as the predominant hedge for risk. And it's accounting for 67% of the hedges that we see right now across our client base. Now, this is interesting because when you look at where the loans are slotting from a best ex perspective, you're seeing that only 35% of our production is slotting into the five and a half, and we have 24% in the six coupon.

What this is telling us is that lenders are are looking at liquidity as more of a driver of hedge preference than actual basis. And so basis means when you're hedging something with something different than what it really is. And liquidity could outweigh that, right? So if the bet offer spread is super wide, it means that there's a more of a cost to deal with a certain type of trade. And lenders might trade off that basis or that that trackability of your loan to hedge.

Because there's a less of a transaction cost of dealing with a more liquid instrument. And that's what we're we're effectively seeing, where we see a lot more of the hedges slotted to that five and a half range compared to where the loans are actually slotting from a Vestex perspective. Really interested to watch this one, especially if we see large moves in rates. It'll be interesting to see where it trails and where it leads other behavior. the last slide that we added was on servicing retention trends. So

We observe almost 40% of the loan sales that are done in the industry today, and we're able to track whether the lenders are making that decision to retain or release servicing at the point of funding. And so the number from this past month was 53% of loans were actually retained across all of our clients. Now, this month this was flat month over month when we go back and look at June. But if we go back to the beginning of the year, it's down almost 700 basis points.

Now that could be for a number of reasons. my kind of pet theory is it has to deal with the fact that we're still in this higher for longer environment. And at the beginning of the year, a lot of folks were pricing in some pretty, pretty rosy retention and volume from refi trends that that folks were looking to capture. And now that we're in this just higher for longer period here now, which I now feel is like year four, year five of saying that, I think folks might be taking some foot off the

You know, foot off the gas pedal there from a retention perspective. But it's still a very healthy number when you see that 50 anything north of that 50% number.

Brennan (: 30:02

Good stuff. Yeah, a lot of new content in there. Looking forward to feedback and and getting the detail in front of all all of our readers.

Mike (: 30:12

Yeah, excited to add some new info here. And to Brennan's point, definitely keep the feedback coming. if you all can you know can think of other data points, let us know and we'll be talking to everybody next month.