As the third quarter of 2026 draws to a close, data indicate that institutional agency mortgage-backed securities (MBS) issuance may fall short of both BTIG's forecast and broader market consensus. This decline coincides with a noticeable shift among borrowers toward home equity loan products, with lenders focused on home equity lines of credit (HELOC) and non-qualified mortgage (non-QM) securitizations gaining market ground.
BTIG Projects Weaker Q3 Institutional MBS Issuance
In a recent analysis, BTIG's lead analyst Douglas Harter projects that if September issuance volumes hold steady at levels seen in July and August, overall agency MBS issuance for Q3 will be 6% below BTIG’s initial forecast and 12% under market consensus. BTIG's estimate for total agency MBS issuance in Q3 also stands 5% lower than the consensus figure. During this period, the Mortgage Bankers Association reported that standard 30-year fixed mortgage rates increased by 6 basis points, reaching 6.85%.
Concurrently, the 10-year U.S. Treasury yield hit 4.86% on September 9, its highest level since early November 2023, partly driven by crude oil prices climbing above $100 per barrel. In response to market conditions, Treasury official Scott Bessent unveiled a tripling of the long-term bond repurchase program, though the market reaction was muted.
Divergent Issuance Among Top Lenders
BTIG tracks issuance data from leading lenders including loanDepot, PennyMac Financial Services, Rithm, Rocket Companies, and UWM Holdings. The group collectively is expected to have originated approximately $134.6 billion in mortgage lending for the quarter, falling short of the $141.1 billion forecasted by market consensus. Rocket Companies is the outlier, projected to exceed expectations by 4%.
PennyMac and loanDepot, in particular, have lagged behind BTIG’s estimates by 25% and 17%, respectively. The discrepancy for loanDepot could be partially explained by their sizable HELOC portfolio, which is not included in agency MBS issuance figures. Actual locked loan volumes for loanDepot were reported to be 3% lower than issuance, suggesting a reasonable margin. PennyMac's August institutional MBS issuance declined 19% month-over-month and was 44% below the Q2 average monthly issuance, highlighting a sharp slowdown early in the quarter.
Meanwhile, Onity and Rocket have modestly outperformed projections, with issuance up 5% and 1%, respectively. Overall, agency MBS issuance rose 5% month-over-month to $116.2 billion in August, buoyed by an 8% increase in purchase loan volume. However, aggregate issuance volume weighted across lenders declined by 2%, reflecting varied lender performance.
Growth Evident in Non-Agency Securitizations
Non-agency MBS issuance showed increased momentum, with August volumes rising 14% month-over-month. Growth was primarily driven by securitizations of closed-end second-lien and home equity line of credit loans, offsetting declines in other home equity investment segments. BTIG estimates non-QM securitization totaled $8.4 billion in August, pacing roughly 17% below Q2 issuance rates.
Bank of America Securities reported cumulative non-QM issuance of $82 billion through August 2026, up from $68 billion at the end of July, though differences in data definitions contribute to reporting variations.
Home equity issuance reached $3.3 billion for the quarter, marking a 19% increase over Q2 and a 10% rise year-over-year. Ratings agency Kroll noted that home equity issuance surpassed $23 billion in the first half of 2026, while Bank of America Securities documented issuance of $30 billion through August 28, including $4 billion added in August alone.
Government-Sponsored Enterprises Maintain Support
Analysis from investment firm Keefe, Bruyette & Woods reveals that Fannie Mae and Freddie Mac hold agency MBS portfolios valued at approximately $173 billion and $140 billion, respectively, both approaching the $225 billion limits established for such holdings. Despite these caps, both GSEs retain capacity to continue portfolio expansion. Analyst Bose George highlights that government-sponsored enterprises are expected to maintain MBS purchases to help stabilize spreads, although current buying activity is sensitive to spread levels.
Presently, the spread between agency MBS and 10-year Treasuries stands at 101 basis points, marginally above the 95 basis points at the end of Q2. The spread between 10-year Treasuries and 30-year mortgages is 198 basis points, slightly exceeding the long-term average of 193 basis points, implying limited immediate room for further spread tightening.
Institutional mortgage markets this quarter reflect diverse trends, with robust growth in home equity and non-QM sectors potentially mitigating challenges posed by elevated interest rates. Meanwhile, the interplay between agency MBS issuance, secondary market liquidity, and government-sponsored enterprise purchasing strategies remains critical to market dynamics moving forward.