The year is off to a fast start. Shifting policy signals and renewed market volatility are already influencing mortgage pricing, lender strategy, and investor sentiment. This week’s Optimal Insights focuses on the forces that matter most – and what lenders should watch as 2026 takes shape.
Here’s what you need to know this week.
Market Update
Policy Volatility Driving Short-Term Rate Movement
Announcements around an institutional homebuyer ban, agency MBS purchases, and renewed scrutiny of Federal Reserve leadership created rapid swings in sentiment. Rates initially tightened before reversing on risk‑off positioning.
Labor and Inflation Trends are Holding Steady
Employment data remains constructive, with job growth concentrated in health care while manufacturing continues to soften. CPI and PPI are expected in the mid‑2% range. Keep an eye on rent/OER revisions, which could shift inflation prints in the short term.
Five Themes That May Define Mortgage Strategy in 2026
Yield Curve Steepening
A wider term premium helped ARM share nearly triple last year. With rates stabilizing, ARMs offer a meaningful affordability lever for qualified borrowers. If the long end remains elevated, expect continued borrower interest and more aggressive ARM structuring from lenders.
The “Couch Cushion” Effect
Borrowers are optimizing the full economics of homeownership – not just the rate. Insurance premiums, local tax profiles, equity strategies, and cash‑to‑close considerations are influencing decisions. Loan officers who can model complete financial scenarios – not just quote pricing – will win trust and capture volume.
Mortgage Spreads Are Compressing, but Unevenly
Overall spreads between mortgage rates and Treasuries have improved, supporting rate relief. However, internal components are moving differently:
Primary–secondary spreads remain tight
Agency–non‑agency spreads widened modestly
Hedge basis remains active Execution discipline remains essential as pricing pressure persists.
Specified Payups Are Now the Baseline
Nearly 70% of loans in pipeline data qualify for a spec payup. That’s no longer a niche story – it’s the default state of the market. Attributes like loan amount, geography, occupancy, credit, and refi friction are driving dispersion. Pricing and hedging infrastructure must reflect this granularity.
Non‑QM Continues Its Climb
Non‑QM doubled its market share last year and is positioned to reach the low‑teens in 2026. Strong performance, product innovation, and investor appetite are fueling expansion. For lenders, this represents both an opportunity to capture underserved borrowers and an imperative to refine underwriting, risk policy, and investor alignment.
Practical Takeaways for Mortgage Professionals
Strengthen structural options. ARMs, buydowns, and equity‑supported down payment strategies can materially improve borrower outcomes when used appropriately.
Model the full picture. Consider insurance, taxes, closing fees, and property‑specific factors into every scenario.
Expand non-QM fluency. Build the expertise – and partnerships – to serve the non-QM segment responsibly.
For a deeper exploration of these trends and insights, listen to the full episode of Optimal Insights. Available on all major podcast platforms: https://optimal-insights.captivate.fm/listen
The views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of Optimal Blue, LLC.