Can mortgage spreads get worse from here?

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about mortgage spreads and what lays ahead.  Related to this episode:  How long can mortgage rates stay below 7%? https://www.housingwire.com/articles/how-long-can-mortgage-rates-stay-below-7/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  Buy one, get one FREE tickets to the Mortgage Banking Summit on October 1st https://events.housingwire.com/mortgage-banking-summit-2026  More info about HousingWire https://lnk.bio/housingwire  Top 5 Trending:  HUD sets one-year statute of limitations on fair housing construction violations https://www.housingwire.com/articles/hud-limits-fair-housing-construction-liability/  House Republicans outline plan to overhaul CFPB https://www.housingwire.com/articles/cfpb-reform-funding-oversight/  eXp ends mortgage JV with Kind Lending, eyes Newrez deal https://www.housingwire.com/articles/exp-kind-success-lending-newrez/  Immigration enforcement tightens squeeze on homebuilders’ job sites https://www.housingwire.com/articles/immigration-enforcement-labor-shortage/  Compass-NWMLS settlement bigger than ‘coming soon’ listings https://www.housingwire.com/articles/compass-nwmls-settlement-bigger-than-coming-soon-listings/  Want more from Sarah? Don’t forget to subscribe!  The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate.

Transcript

00:10Welcome, everyone. I'm joined today by lead analyst Logan Motoshami to talk about whether

00:15mortgage spreads will get worse and what that could mean for mortgage rates. Before we dive

00:20in, here are the top five trending articles on HousingWire.com. First is HUD sets one-year

00:26statute of limitations on fair housing construction violations, followed by House

00:32Republicans outlined a plan to overhaul the CFPB. Then we have EXP ends mortgage JV with kind

00:39lending, I's new res deal, and immigration enforcement tightens squeeze on homebuilders

00:44job sites. Finally, we have Compass NWMLS settlement is bigger than coming soon listings. We've got a

00:52lot to talk about, so let's dive in. Logan, welcome back to the podcast.

00:56It is wonderful to be here. What a crazy week, right? We had a lot of stuff. I created like

01:03an AI thing about like a robot telling me to stop looking at the bond market at 12 o'clock

01:08at night, and it takes my foot away and it punches me out. And we had some events Thursday morning.

01:18Of course, by the time this podcast comes out, it drops Friday, it'll be out. But Fed Governor

01:22Waller kind of said, hey, listen, I might not be into a hike if inflation, the month-to-month data

01:27prints is soft. Kind of like what he said before, even though oil prices went up a little bit and

01:33that

01:34chart does not look good, the 10-year yield fell four or five basis points lower. So in this crazy

01:40volatile week with a lot of crazy headlines, the 10-year yield has not been able to push up higher.

01:48And Jobs Friday will be the final test of that. And still to this day, because of mortgage spreads,

01:55rates have stayed below 7% the entire year, even though the 10-year yield is not that far off

02:01from

02:01the yearly or cycle high, at least around 5% in 2023.

02:07Well, we are going to get into those mortgage spreads. But I just have to say, in between

02:11one podcast and another, we were talking about, would President Trump, is he going to end the war?

02:17And then we're talking about, well, how can he really do that? But also, what's that going to be?

02:20And all of that, oil prices going up, still, we're not over 7%.

02:26Still, one of the things I always like to remind people, from 2011 to 2014,

02:31oil prices were elevated for years, many, many, many years. But mortgage rates were

02:37always under 4.75% the entire time. That's because Fed policy was less restrictive. We had

02:44zero interest rate policy. The labor market was, the recovery was very weak. Wage growth was very

02:49weak. Inflation wasn't a concern at that point. But it's much different now. This is a very,

02:58very unique cycle. This is a very, very unique year in the history of U.S. economics, I believe.

03:03There's a lot of shifting things. And boy, if you don't track this stuff day to day, man,

03:07but I mean, you're completely whiplash about what's really going on.

03:12Okay. Well, one of the reasons that things are not over, that mortgage rates aren't over 7%,

03:16as you said, are mortgage spreads. So let's talk about this very important topic, which is,

03:21could they get worse? Because this is the only thing holding us back.

03:25You know, I always go back to, what was that? Like three or four years ago, I went to a

03:30mortgage

03:30event and I was asking everyone, it was like 500,000 people there. I said, how many people

03:34know more mortgage spreads? And like three people raised their hands. And I thought,

03:39that's a problem. And for me, it's, it's the reason I bring it up is I fundamentally believe

03:45the housing market, because of what we've seen in the data, can grow sales if mortgage rates get

03:50just to near 6%. Fed policy never, never allowed this to happen on itself because the spreads were,

03:59were bad and we weren't at neutral policy yet. If you can get down to neutral policy, it's easier

04:06to trade between 380 and 420 on the, on the 10 year old. But without that, the only reason you

04:12ever

04:12had 6% raises because the bottom market thinks the economy is slowing down.

04:17So with mortgage spreads, you know, every year we talk about how much the percentage or the basis

04:22points that it could go lower, you know, 2024, 2025, and then 2026, you know, I was looking,

04:28we could get, probably get down to 180 toward the end of the year of the mortgage-backed security

04:32purchase, you know, pushed us down there earlier in the year. But without that,

04:38where rates are seven and a half percent and higher, if we had the worst levels of the spreads

04:43in 2023 or 2024, and in 2025, even we're, we're around seven and a half percent. So the housing

04:49dynamics don't work well with rates above 7%. So it's a big deal to, to how I look at it.

04:57And I've

04:57always, I mean, the 2026 forecast was we can get 237,000 more home sales if rates stay six and

05:04a

05:04quarter in order. But now the question is, can spreads get worse? Cause this is, this is what

05:09I'm, I get asked a lot because now people get to see it. Now you get to see why spreads

05:16are

05:16important. We're sitting here and we're still under 7%, but I think I want to address this so it can

05:25maybe kind of make sense to a topic. I just don't think a lot of people follow or track ever

05:29in their

05:30lives. Now, this is a really important topic. For me, the first time I remember, you know,

05:35seeing that, Oh, mortgage spreads got worse. And in a big way was with the Silicon Valley banking

05:40crisis. Right. And that's really what we've been trying to work off ever since that happened. And

05:44it was at 23. Yes. Mortgage spreads had been getting better early part of 2023 and the Silicon

05:53Valley banking crisis pushed, you know, how we track the spreads. Of course it's, it's used using

05:58the Freddie Mac mortgage data got us above 3%, which the last time we got above 3% with spreads

06:07was 1986. So during that process of the Silicon Valley banking crisis, the federal reserve had to

06:13come in and do emergency policies to clean up all the banks and make sure it doesn't, you know,

06:18spread around spreads that were getting better. Imagine if that didn't happen. Imagine if there was

06:24no Silicon Valley banking crisis and the fed didn't hike rates still in 2023, that year would have

06:29looked a little bit different with the spreads, but in any case it did. So we got 8% mortgage

06:35rates

06:35and I thought it would be a good way to teach people because the history of spreads, if you go

06:40back to

06:411971, we'd like to show those historical charts is that when the fed has done hiking rates and their

06:47next move is going to be lower, the spreads start to compress and go lower over time and time. You

06:53don't

06:53need the federal reserve to actually go in there and buy mortgage backed securities. That's what a lot

06:57of people were assuming that the spreads can never get better because mortgage backed security purchases

07:02by the fed is not, it's not going to happen. Well, in any case, over time it did. But now

07:07we're closer

07:08to normal, right? Normal. How I look at it in recent history, 160 to 180, I think we got down

07:16to 181 at

07:17one point. Spreads have been under 2% with all this drama, you know, with all this chaos that we've

07:23seen around the world. And it's doing what it normally should do at this point. And if it got

07:31worse, of course, you just keep on adding basis points to mortgage rates and go higher and higher.

07:36And what we've always seen is mortgage rates get above 6.64. Housing data slows down. It has slowed

07:41down this year. Of course, the velocity of that move isn't very big. And one of the variables is

07:46because rates have not gone above 7%. Okay. You know, it strikes me that we should probably go

07:52back to basics here because, you know, if you listen to us regularly, we talk about spreads all

07:55the time. Not everybody even knows what you're talking about. So at the very basic level, what is

08:01the mortgage spread? Okay. If I had a little Jodeci, a little Usher music right now, you know,

08:10okay, what do we talk about the slow dance? The slow dance is the 10-year yield and 30-year

08:17mortgage

08:17rates. I like to use that chart from 1971 all the way. Those two have been slow dancing with each

08:22other for decades and decades and decades. Sometimes they slow dance far apart. When I talk about slow

08:29dancing far apart, Napoleon Dynamite, that slow dancing, that thing, well, far apart. Footloose, you got

08:36to keep people away. That's not good. That means the spreads are widened. That means investors need

08:41to be compensated for early payoff risks. So we don't like that kind of slow dancing. And by the way,

08:46you all thought this was drama in 2026, like in 1980, like mortgage spreads got to 5.93% and

08:53they

08:53also got to negative minus 24%. That was a drama year. I was six or five or six, so don't

09:00remember it

09:00well. But in any case, so when spreads are compressing and there's less early payoff risks,

09:08the slow dance, Jodeci, Usher, there we go. Color me bad. There we go. All the way coming down,

09:15compressing. That means mortgage rates can be lower and stay lower for a longer period without

09:19the early payoff risks. So that's the difference. It's basically investors, I mean, the simple way,

09:25I mean, there's other ways to explain it, but early payoff risks. So a lot of times when mortgage

09:30rates shoot up higher, there's more compensation for investors, convexity, all this stuff, the

09:35velocity of how things trade. And then when things start to slow down, mortgage spreads get, because

09:41there's less risk. And there you go. The spreads compress, mortgage rates could stay lower. That's

09:45why on the tracker every single weekend for years, we show the difference. So people can visually see

09:51where rates would have been in 2023, 2024, 2025. And now the full enchilada of data has showed that

09:59even in one of the craziest weeks of the year, you hug a mortgage spread, you slow dance with it,

10:07you give it a flower, whatever it is, it's the only thing that's kept rates under seven. And of course,

10:12demand would get weaker if you go, I mean, you're talking about moving from mortgage rates at one

10:17point was 5.99%. If it went up to 750, one and a half percent move in a calendar year

10:23is actually

10:23very noticeable. So one of the reasons why I did not even forecast 7% rates is that the spreads

10:30were

10:30good. So it would need to take something out of the economic norm of this year to get the 10

10:36year

10:36yield above 460 and get rates to even challenge. And the conflict happened. So here we are. And this

10:45is what it is. But this is why I know people are probably sick of hearing hug a mortgage spreads.

10:50But now I think this week, everyone can see how important it is.

10:54I think it's important to say like mortgage spreads. It's not like, you know, the Fed funds

10:58or something. Nobody sets the mortgage spreads. Nobody is saying this is what the mortgage spread

11:02is going to be. It's two separate things that usually move together.

11:06Yeah, it's investors. So if you look at the history of mortgage spreads going back decades,

11:10so number one, whenever you get a sharp rise in mortgage rates, right, the Fed funds is going

11:17aggressive, you get the spreads to go up higher. That's one honest variable reason. So if the

11:24Federal Reserve all of a sudden got hawkish, let's say Beth Hammock was running the Fed, and then Beth

11:30Hammock's family members were all the Fed governors. And they'd be like, we want to raise rates a lot.

11:34We want 2% rates hikes in the next three months. Then the spreads can get worse, right? Because I

11:41believe 65% to 75% of where of the 10-year yield and the slow dance and the 30

11:47-year mortgage is Fed

11:48policy. So the Federal Reserve is not necessarily being too aggressively hawkish. All they're talking

11:54about is, hey, listen, we want to take back the insurance cuts of last year. And that's it.

11:58So far, it's still anchored somewhat reasonable. This is why the 10-year yield is still

12:02very elevated to Fed policy and the term premium and all that. But spreads have kind of done

12:08their thing. That's one way you can get spreads to go higher. Another is a crisis, right? We had

12:13the Silicon Valley banking crisis. You had the SNL banking crisis in the 80s. Those are things.

12:20Also, if you have a job loss recession that happens out of nowhere, right? All of a sudden,

12:24we get a fast... Now, why would spreads get worse there? Because not all recessions,

12:30spreads get worse. This is something that people don't know. People just assume that if you have

12:34a recession, the spreads get worse. It happened in the Great Financial Recession and it happened

12:38during COVID very briefly. But early payoff risk can mean that if you start losing your jobs,

12:45are you getting money for your mortgage at this time? This is why spreads can at times,

12:51not all the time, but at times, get worse during a recession. So that's that.

12:58But those are the things to me, if you really wanted to focus on spreads getting worse,

13:02because I could see the frustration by some of the bears. They're just like, oh, God, I'm sick of

13:08him. Hug him mortgage spreads. God, why can't mortgage rates be 8%? How can my YouTube get more

13:14clicks if I can't say that? So those are the things that you have to be mindful, not the conflict

13:19so

13:20much, right? I think a lot of people thought that the conflict headlines would make the spreads get

13:25worse. And that's not a banking crisis. That's not a job loss recession. And that's not forcing

13:31the Fed right now to get very, very aggressive in a very short amount of time above where the 10

13:36-year

13:37yield is. Now, if the 10-year yield was at like 350 and we're talking about the Gandalf line and

13:42we get to test that again, you remember the Gandalf line? I do, yes. Oh, Lord. Just for anybody who's

13:49listening to us know, back in 2023, the 10-year yield was going lower and I wasn't seeing the

13:55recessionary data that people were talking about. So I was like, the 10-year yield will never get

13:59below 3.37. There's something wrong here. So I thought, how do I convince people that? I brought

14:04Gandalf the Great. And I was like, you shall not pass. And crazy enough, that level got tested like

14:13eight times. I was like, damn, we are, Gandalf is really getting that going with the Balrog right

14:18there. So, but here, you know, the 10-year yield is already at an elevated level, right? The term

14:25premium is already higher. So it's not like the spreads need to get worse right here because of

14:30that. So right now, the oil event is not doing anything. So far, we haven't had any credit crisis.

14:37I know a lot of people thought private credit would get the spreads. That obviously hasn't worked out.

14:42So those are the things that I would focus on rather than speculation on stuff. But that's

14:50the history of mortgage spreads. If you look at the chart, I was at an event recently and I showed

14:55the long-term chart of spreads. It looks like an EKG meteor, you know? Looks like somebody's not quite

15:02stable out there. And things used to be a lot more hectic in the early 80s, but it has been

15:09a very,

15:09very calming factor in 2026. So that's why we have to say hug a mortgage spread, man, because it

15:15could be a lot worse. So I think that's my question. It's like, you know, when you see the

15:20headline for this episode, it's like, you know, can they go higher? Will they go higher? And I guess,

15:24you know, my question to you is like, you obviously think there's a reason why you need to talk about

15:29that right now. And is that because people expect when there's a conflict, then it's always going to go

15:35higher? This is one of the reasons I brought this up to date. There's a lot of people who have

15:41no

15:41idea why mortgage rates are not above 7% because they see the 10-year yield almost at 5%

15:48and they

15:48think, well, it wasn't rates at 8% back then? So they have no idea what spreads are. We have

15:53people

15:53in the mortgage and real estate industry who don't know why, you know, rates are acting better. So I

15:59thought, you know, and you get a lot of people that ask, well, can spreads get worse? Because right now,

16:03spreads are the only thing keeping this, I mean, if it does get worse, guys, then your rate things

16:09could go up a lot higher. I mean, we could talk about 7.5% mortgage rates in a very,

16:12very quick

16:13amount of time if spreads get worse. But for right now, the spreads are doing its thing. And part of

16:18one of the reasons why I like to bring this up with market people is Lori Logan. Lori Logan is

16:22the head

16:23of the Dallas Fed. And in 2024, she talked about, well, the 10-year yield is higher, so we don't

16:27have to be

16:27as restrictive as much. And she's not saying it this time around. What I believe personally,

16:32the Federal Reserve, they should at least see that mortgage spreads have improved. So the long end

16:38of the market going up higher is not as restrictive as let's say it was in 2023, 2024, and 2025.

16:45I mean, it's so much of this is like, you know, like what can higher rates do with AI? Because

16:50AI has

16:51so much money and they put it into the system and the construction labor is being boosted and

16:55electricity costs are ups and higher rates won't impact, you know, people who have that much money in

17:00there. But it does impact the housing sector. So which is the one area that the Federal Reserve

17:06is not saying is a great source of inflation at this point. So I wanted to address that so I

17:13don't

17:13have to try to explain this, like what can make the spreads worse. So now you have an idea. And

17:18you can

17:18look at the history of the spreads and kind of see it. So you are on the lower end of

17:22where you're

17:22closer to normal. So what it is that you don't have much downside from here, but you have upside

17:29if some of these things do occur. So that's something to think about going out in the future.

17:33Let's say we have a major credit issue with banks and everything. And just remember the Silicon Valley

17:38banking crisis, the Federal Reserve came in and washed it up really quick. So the Federal Reserve

17:43has tools to clean up messes very, very fast. That's why they're created. And they could do it in the

17:49commercial banking and all this stuff. And this is why we haven't had a credit issue in any big

17:53meeting way. They can pull levers when needed upon. So set this in the context of like over the last

18:00week after Kevin Warsh did his statement at Jackson Hole, you're like, listen, don't really need to

18:07listen to Kevin Warsh so much. We need to look at the Fed hawks, right, who are running the show,

18:12but also the conflict is what is causing a lot of these things. At the same time, you have over

18:17here,

18:17you have mortgage spreads and you're like, the conflict isn't going to affect that. So maybe

18:23put all of that in context. It's confusing. I mean, just remember, kind of when the 10-year

18:28yield goes up, mortgage rates go up with it, but mortgage rates aren't as high as it was in the

18:33previous few years because the mortgage spreads are still under 2%, where it could have been 3.11%

18:40was the worst levels in 2023, 2.73% was the worst levels in 2024, and 2.54% was

18:46the worst levels in

18:462025. So we're still under 2%. So that's why we do it every single weekend, just to give people

18:51visuals out there. We put it on social media just to see that. So if you're new at this and

18:58you hear

18:58all these noise and you see the 10-year yield and everything, and you think, why are mortgage rates

19:01still under 7%? Just hug it. You're the AI. I got this giant, giant peanut butter jar. It's got

19:10mortgage spreads in it. And I just like, give it a hug and all that stuff. And remember, we made

19:15that

19:15video when we got the jar in Utah. That was a great gift. You know, people may not know this,

19:23but when you go speak at places, a lot of times, our fans, your fans will have something special.

19:28You've gotten a Gandalf doll? Yes, yes. Josh Romney, a Mitt Romney song,

19:33a Gandalf action figure. Action figure, thank you. You know, so that still was a very,

19:39very crazy call to do, you know, and bring out Gandalf. And you're thinking like, okay,

19:43maybe it'll get tested once or twice. It got tested eight times that year. And we're like,

19:48huge. And then rates shot up and the yields shot up right after that, as it should have,

19:52because yields were pricing in a recession at that point. And we just didn't have that data

19:57in there yet. It's true. You've also gotten a Wolverine action figure.

20:01I've got Wolverine posters, Wolverine action figures. I've got hats, mugs, everything. So I've got a lot of

20:09fun stuff. Shirts, a lot of Chart Daddy shirts out there. So maybe one day Housing Wire can do merch.

20:18Absolutely.

20:19And get Chart Daddy stuff out there, because it's definitely, definitely become a brand.

20:23People love it. And that reminds me, everyone needs to come and hear you

20:27October 1st at our Mortgage Banking Summit. If you are in, on the mortgage side of the business,

20:32you should be there. We have, Logan is our keynote. We have a whole bunch of other great speakers as

20:37well. And you can meet Logan, give him an action figure, or just shake his hand.

20:44Yes, yes, yes. I've got plenty of action figures right now, by the way. But one of the things for

20:50the Mortgage Banking Summit, we're going to have a serious discussion about mortgage rates. It's

20:56going to be in October when it happens, but also what to look into 2027. I just feel like there

21:01are

21:01people out there on the internet that are saying things about mortgage rates going lower that I

21:05question some of the stuff. And there's kind of maybe a better premise to talk about that,

21:12so things that could match. Because again, things shift. Things shift within a year. You don't have

21:18the luxury of just mortgage rates will be 6.75 in the third quarter. We'll see you in three months.

21:24You got to track this stuff daily and all that. And who would have thought we would have been in

21:30a

21:31Middle East conflict in an election year that lasted six months. But we're here, so there are

21:37things to work off. And I tell everyone, everyone needs one good nerdy friend. You might as well let

21:44the truck daddy be a nerdy friend, because I try to make it as fun as possible out there.

21:49Absolutely. Next time we talk, it'll be about the jobs report, which will be out.

21:53But before then, thank you so much, Logan. Thanks for breaking this all down for us.

21:58Pleasure, Sarah.

22:02Pleasure, Sarah.

22:03Pleasure, Sarah.

22:04Pleasure, Sandra.

22:05Pleasure, Sarah.

22:08Be here.

22:09Pleasure, Sarah.

22:09I want to ask you, completeness.

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