Labor Trends, Inflation Watch & March Market Advantage Preview | April 7, 2026

Jim Glennon (: 00:00

Welcome to Optimal Insights. I'm your host, Jim Glennon, Senior Vice President of Hedging and Trading Operations at Optimal Blue. Our clients and industry partners have long relied on Optimal Blue for trusted insights and commentary. And these podcasts are an evolution of our commitment to keeping the industry informed. Let's dive into today's episode.

Welcome everybody. We have a great show as always for you today. Thanks for being here this week. In the interest of making sure you know what to watch out for, whether you're an originator, a capital markets person, or just someone who's interested in the mortgage industry.

and some great market commentary. Here we are. So we'll start with the market update as always. We'll discuss the latest on the market impacts of the Iran war. A lot going on there over the past five weeks at this point. We'll tie that back to interest rates, of course, and equities. There's a lot of interplay there. And of course, we'll talk about some numbers we saw last week. We had the non-farm payroll, the unemployment report, and a couple other odds and ends with Alex and James here in a second.

Then we will have Mike and Brendan on to give you all a preview of our market advantage report that comes out later this month. So just lots of great data and insights to talk about there. Before we get into it, in the way of high level data, the OB-MMI, just interest rates in general, not where we want them to be right now, but the OB-MMI, the conventional 30 year has been holding a range between about 6.3 and 6.5 over this past week.

The 10 year treasury, really similar range except two points lower, of course, between about 4.3, 4.5. We'll talk more about why that is here in a moment. Let's transition over to Alex and James and talk about the market.

Alex Hebner (: 01:56

Welcome everybody to the economic portion of this week's optimal insights podcast. I'm here, myself, Alex here with James Cahill from our head of your trading desk in DC. ⁓ just to talk a little bit of economics and what's changed over the past week. ⁓ James, think just jumping right into it. We'll jump into a little bit of data. we got the non-farm payrolls number on Friday. How did that look?

James Cahill (: 02:19

Yeah, so that employment report came out. It was bit of a surprise. So based on February's numbers, which had been negative, consensus was at best around 59K an increase, which is pretty much a dud. But what it came out to be was about in new job openings. This pushes unemployment down to 4.3 instead of 4.4%.

so, Hey, that great, you know, moving in the right direction. ⁓ when you take those numbers, you know, step back and look, you'll see February actually got revised even lower. So rather than a loss of 92,000, was a loss of 133,000. I know you've been talking a lot about this too, is in February, there was definitely some noise from a strike in the healthcare industry.

that was resolved into March. So a lot of those numbers should have made February look worse, should have made March look better. But it's definitely a boon to see this kind of a push. the I heard was, well, you know, let's see what happens after the revisions. Let's see if this 178 number sticks around.

Alex Hebner (: 03:39

Absolutely, I'm in agreement there. I'm going to be both February and this March number. I'm very interested to see how the revisions on it go, if they get a little bit tempered down to closer to a zero number. But as we've seen with the initial revision on February, that wasn't the case.

I think when you

would take a step back, like you said, and look at this on an average basis, you know, we were back 133 in February plus 178 here in March, average those out over the course of two months, we've had plus 40,000 jobs or so over the course of two months, you know, so really it feels as if we're missing one of those months that we would have otherwise just kind of skipped over when it's plus 50K. So definitely still a hole there, I would say.

in the labor market from these two releases.

James Cahill (: 04:26

Yeah, the one piece that was kind of more interesting with it was, you know, when this February number came out, immediately people started talking about actually a rate hike this year. We ended up with almost a 25 % chance of a rate hike by December. After this positive number, that's dropped more to like only 10%. It looks a lot more like, well, rates will be staying as they are, is the current consensus. So.

Those, you the number both last month and this month definitely has bullied our rate expectations around.

Alex Hebner (: 05:02

Definitely agree to it. From everything I've seen, it's going to be a pretty flat rate path out of the FMC for the foreseeable future if things stay as they stay happen here for the past month or so.

James Cahill (: 05:13

Yeah, and so with, you know, forward projecting of rate paths, also seeing in the future here, PCE this week, this is the Fed's preferred inflation number, as we always say. It's currently expected to stay at that 2.8 % number. And then Friday, we'll be seeing CPI as well. This number is going to sit about we're seeing

It's not moving compared to last month or really the month before. is interesting is if you went one year back today or this month, it was actually liberation day. So that's when the tariffs first came into place. The market really had a tantrum over it. The conversation was inflation. The conversation was stagflation. What is going to happen? Here we are one year on. is only, you know, a point.

than where the Fed would like it to be. The good news is it's much better than some of the doomsday or worst case scenarios that we were thinking and talking about back when the tariffs first got put in place, but it is higher than anyone would like it to be. I'm sure everyone would be happy to never hear the word inflation ever again. So 3.3, 1.3 points above the Fed's general rate. It's not quite where they'd like it to be a year on.

Alex Hebner (: 06:38

Definitely. I think especially probably this month, what we're keeping an eye on is it seems to be creeping up just a little bit in the past few releases. So we want to keep an eye on that. And the geopolitical landscape isn't doing this number any favors. I think a lot of folks would probably make the argument that that sans any geopolitical issues that this number would be much lower than we're currently seeing it at. I think the main concern of what markets are going to really keep their eyes on.

this week is in regards to that CPI number, specifically the non-core number that includes the very volatile energy and food costs. You know, at this time, looking at those energy costs, the non-core number is the expectation is potentially for a month over month, jump of anything beyond that, I think would really shake the market up. And like you said, 3.3%, we'd be well on our way to that with that kind of release.

James Cahill (: 07:33

Speaking of geopolitics, so as of this morning, gas is sitting ⁓ around $4.12, up $2 from the end of February. It's ⁓ a painful place to be, but we're still chugging along. Oil futures are almost $110 a barrel. And there's a conversation about those are the future prices.

if you look at the spot prices, so immediate to 30 day delivery, it's much closer or $141, $2. So there's some real, know, how long can we have prices this high? The United States is a net exporter. We're a little bit more able to weather this, but supply and demand works as it does. So those prices are going to continue to increase unless we see a resolution soon. Speaking, you know, as of this moment, the weekend,

administration sent out a threat that Tuesday was a day to get a deal done or kind of no turning back. We'll see if, if they get a deal or if that, holds, but it's definitely something to keep your eye on. would say Monday and Tuesday night, I would hedge to flat, make sure your position is exactly zero, as close as you can be.

Alex Hebner (: 08:54

Agreed he was saying that this is his final deadline. I think he's had a lot of taco type accusations leveled against him in regards to all the peace deals that may or may not be in the works. He does say that this is the final warning they're kind of on the matter. We'll have to see here in the next 24 hours or so if those threats pan out and if the peace talks that have allegedly been going on between Iran and Pakistan.

as the intermediary in the US, if we can get anything here in the next 24 hours.

But yes, I'm with you there, James. definitely do not be, it's not the time to be taking positions. Definitely be hedging to flat. ⁓ Generally we showed ourselves a little bit short to cover any incoming locks, but I think flat is definitely the move over the next ⁓ half week or so.

James Cahill (: 09:42

more, you know, rate related and within the country. Kevin Warsh is a nomination hearing is set for mid April. So the next two weeks, you know, they will have the hearing. He will sit and they'll decide whether or not he in theory could be the fed head, but Senator Tom Tullis is still holding out that he's not going to approve of anything until the investigation around.

Jerome Powell in the Fed is resolved. is actually, he's not up for reelection. He's leaving after the midterms, but that means he's kind of a lame duck until January. So plenty of time for him to just drag this out. So I think that that's gonna be a conversation again, once Warsh gets theoretically approved, but held back. Is there anything the administration can do to just push him through?

Alex Hebner (: 10:33

Definitely, definitely. As we approach Powell's official end of his tenure, I can expect this to much more so enter the financial news media. And I think it's something we'd already be talking about if not for the geopolitical situation that's currently we'll just have to see here. Again, think Tillis, like he said, he's a lame duck, but he could drag this on well into the fall if he truly wanted to.

James Cahill (: 10:58

Yep, all the way until the last day for all he can ever see is out.

Alex Hebner (: 11:00

Yep, absolutely.

Yep.

James Cahill (: 11:03

That's mostly it for you know looking forward this week other than of course the the biggest news Alex any opinion Yukon Michigan any teams?

Alex Hebner (: 11:11

Miss you.

You know, I don't really have a dog in that fight, but I've got some good friends who are big Michigan fans, so I'm gonna have to go Michigan on that one.

James Cahill (: 11:19

Okay, good luck. Stick with my family, we're going UConn.

Alex Hebner (: 11:24

Here you go, here we go.

Perfect, we'll wrap it up there for this week. Coming up in the next segment, we have Mike Vo and Brennan O'Connell on their monthly talk here to talk about the Market Advantage Report, which is released every month. And you can learn more in the following segment. Thank you.

Mike Vough (: 11:45

Welcome to the March Market Advantage Recap. And sure, it was a month of March madness, not just with basketball, but also with the rate movements that we've seen in some of the macroeconomic events that have been impacting the rate environment. Brandon, why don't you kick us off with some of the origination findings that we've seen given some of that volatility that we experienced this month.

Brennan O'Connell (: 12:09

know, Q1 finished on a high note from an origination activity perspective. think a lot of that probably occurred early in the month. And then I think certainly some of the impact rates that we saw towards the back half of March, I'm sure we'll see that play out in April numbers, March lock activity, really resilient. Total lock volume up 13 % over February more encouragingly 26 % year over year.

Reflecting in a growing for purchase mortgage money. So purchase activity led the was up 38 % from February relatively 20 % year over year has been taking share of purchase kind of secular trend over the last several months demand has now reached 71 % of total production

So really great to see the purchase market, which is, you know, it's going be more stable, less rate dependent, and really great to see that, ⁓ start off strong here and kind of the beginning of the spring selling season. On the refi side, cash outs increased 9 % month over month, 21 % year over year. rate term loans were down month over month, sort of unsurprisingly given where we're

% from the same time in: 2024

from the same time at the end of February, jumbo rates rose 41 bips, FHA 21 and VA 44 bips. Despite the increase, we're still 15 to 20 basis points better than we were at the same time last year. Quick note on spreads, the 10-year treasury ended March at 430, up 33 basis points month over month and the spread modestly. So it's just above 200 basis points, the LBMI.

primary rate versus the 10-year treasury.

on the product mix side. So we saw conforming share decline to roughly 50 % of total volume. FHA sits at 18.5%, nonconforming around up a little bit of share in March and then VA share slipped a bit to just above 12%. Government lending though, I think still in a stronger position now than it was certainly a few years ago.

a couple other odds and ends. think affordability metrics move a lot. So I think that's encouraging. We want to see here that first time home buyers aren't being locked out of the market by higher rates. I think that that's certainly a concern for the general population. So 46 % of conforming purchase coming from first time home buyers, over 70 % for FHA and VA held

held where it was at around 46%. DTI ratios remained stable, actually a little bit down too. So conforming 36, a little bit above 36 for DTIs, FHA 43%. And then VA at 42 or just below 43. And then finally here, I think, you when we talk about some of the more macro trends that we've seen,

both around ARM lending and then non QM as well. think just given the rate environment, we've seen an increase on both of those products over time that we're tracking. ARM usage did continue to climb, ended March at ⁓ roughly 12%. That's the highest mark since October of 22 and really well above pre-pandemic levels. So these adjustable rate mortgages certainly are coming back. You know, it's nothing like what we saw

n kind of consistent to start: 2025

law of large numbers, we'll kind of see as we get into the spring buying season, if non QM continues to grow. In terms of, you know, within that umbrella of non QM, the investor and DSCR programs did show a pretty strong month in March. So continuing to see folks ⁓ buying up rental properties as a methodology here to earn income.

Oh, and then one other point, I think I failed to mention it last month, but we're over 400,000 for the average loan amount, which is, you know, it's just sort of crazy that that's where we're at. And we ticked back slightly in March, we were down to just above 401, down from 404 in February. But again, we're sitting comfortably above $400,000 as the average loan amount the United States. It's a big number for folks. And Mike, I think you have some.

Stories around that as it relates to spec pools as well. Maybe that's a good segue for you to jump into the secondary.

Mike Vough (: 17:33

Yeah, thanks for the assist, Brian. Great segue there. One of the things that we're watching this month in April is that Fannie and Freddie releasing a specified pay up for loans greater than 400 and less than 425 and greater than 425 less than 450. These are two additional 25K buckets that they're going to be supporting via the cash window. So paying up for loans that are a smidge above the average that Brennan mentioned there.

because they're less likely to prepay than maybe your 700 or 800K loan. It's really interesting how this kind of starts. It starts with demand capital markets, right? So, folks who are creating structured pools, folks who are creating collateralized mortgage obligations, they're looking for this mix and match of prepay sensitivity to really level off and get repeatable recurring cash flows for that end buyer of the mortgage bonds.

And as analytics and data have gotten better and better, we've been carving up more and more of these loans, these loan cohorts to find specific cohorts that prepay differently than the average loan. And so now we're moving to a world where Fannie and Freddie are going to be supporting these next two tiers of 25K specified payups. And it's having some interesting reverberations throughout the industry. So first it starts with those folks in Wall Street or

broker dealer community, they look for lenders who are securitizing this. So you see those top 20 lenders may have already been securitizing these pool cohorts already, and then gets more adoption and it becomes more durable. And then it eventually will pass towards lenders putting it into their rate sheets. And then eventually it gets to the agency cash windows supporting those specified pools.

And then everybody who's able to sell to the agencies can take advantage of that, right? It's kind of limited first to those large folks who are pulling on themselves or they're on their own. And then it moves the folks who are selling on like a one-by-one basis to the agency cash window. And we're going to see that this weekend. It's actually having quite a bit of impact. Historically, we've talked about this number on the podcast before.

we were seeing across our hedge pipelines about 72 or 73 % of loans on average eligible for a specified pay up. Now, if you think about on the low, balance, which is they call these low pools, you're looking for anything that is less than that 400 number. Now we're up to 450. And then you layer on things like investment in second homes, lower FICO scores. You look at different states that have refi taxes.

There are all types of ways this is being cut up. And we're going to see that 72 or 73 % number quickly become almost 80 % of loans eligible for some type of specified pay up right now. know, it dovetails nicely with a trend we saw this month where we saw loans sold to the cash window increase about 100 basis points month over month, chipping away at MBS securitization an outlet.

And I think we might see more of that trend continue. We've seen the cash window really increase in terms of monthly origination share in our system, almost up 10 % from the beginning of the year till now. So I think we might see even more of that over the course of the month. Moving on, also have best effort mandatory spreads have decreased three basis points for conventional loans this month and

five basis points for government 30 year while the conforming 15 year increased seven basis points. Interesting trend. Not sure it says a whole lot on a macro level, but we'll keep an eye on it. one that's interesting and expected, you on average we saw OB-MMI up approximately 20 basis points over the course of the month. And with that, saw MSR values increased about six basis points.

to on average a shade under a five multiple or a 1.25 price on a 25 basis point strip of servicing. Again, it's expected as rates go up, it's less likely that folks refi and there's that larger trend here of folks are paying up for loan amounts that they think are less likely to refi. The same thing as being held constant on the servicing side as well. As rates increase, that borrower that was originated at that five and three quarters,

or that five and seven eights now is not likely to refine the short term here at all if rates are in that, you know, six three to six five range. So servicing is, you know, the demand for that asset has been up. Even when we saw rates decrease, we saw the price continue to kind of tick, tick, tick closer at five multiple. And this is just another excuse for that. Another stat, two more stats to round this out here. You know, loans sold to the highest price increased a hundred basis points this month to 79%.

of where we saw loan sales executed last month compared to 78%. Despite some of these headwinds that we're seeing with going up and conversely with some tailwinds with volume up, lenders are still looking for the best execution the vast majority of the time. They're not weighing some of these secondary or tertiary factors when doing loan sales. The best price is winning and continue to kind of increase there. And lastly, to wrap us up here,

Our investor count, which is the metric that we use to track the amount of investors that are bidding on your average loan sales, stayed flat at 14. This is our second or third month in a row that we were stuck at 14. But if the listeners remember, we did have an increase at the end of last year when it went from about 12 to 14. So just an interesting trend to keep watching. If we see that number start to tick down, that will be an interesting stat to watch to see if some of these other profitability numbers then follow that suit.

Brennan O'Connell (: 23:24

was just going to jump in Mike and mention, I'd be remiss if I didn't let our listeners know this, and it's going to serve this, way each month going forward, this, this podcast and the release of this commentary will, show up before the market advantage report, which is obviously the sort of accessory report to this, this recording. so for folks that

are able to tune in and listen here our dialogue. You're gonna get the updates on the monthly statistics before the Market Advantage Report comes out. But a good start to Q1.

Mike Vough (: 23:57

Yeah, good start to Q1. think folks would generally like to see rates back where they were about 30 days ago. But even despite that right now, I think folks have have weathered a lot of storms in terms of the rate volatility that we've been seeing the past six years now at this point. So going to be interesting to see how long this this is a prolonged rate increase up. But generally, when we were in that five and three quarters to five and seven eighths range, I felt like there was a lot of momentum.

forward. So it sucks to go backwards a little bit, but generally I think folks have the muscle memory and the processes in place to handle this type of move.

Awesome. Well, that's it for the March market advantage to Brandon's point. This is the only place to get that sneak peek. So your eyes and ears and peeled listening for ⁓ this podcast going forward.

Brennan O'Connell (: 24:48

Thanks all, we'll see you next month.

Jim Glennon (: 24:49

All right, we are ready to wrap this thing up. Thank you so much, Alex and James, and of course, Brennan and Mike. Great episode once again. And that's it for today. Join us next week for another episode of Optimal Insights, where we'll continue to provide you with the latest market analysis and insights to help you stay ahead. Check out our full videos on YouTube. You can also find each episode on all major podcast platforms. Thanks again for tuning into Optimal Insights.