In this episode of Optimal Insights, host Jim Glennon is joined by James Cahill and Alex Hebner for a deep dive into the latest market trends and economic signals as we approach year-end. They discuss the impact of tariffs, inflation trends, and employment data, highlighting how these factors influence interest rates and mortgage activity. The conversation covers the Fed’s upcoming meeting, expected rate cuts, and the implications of leadership changes in early 2026.

Later, Brennan O’Connell and Mike Vough preview the November 2025 Market Advantage Report, analyzing origination trends, lock volumes, rate movements, and secondary market execution strategies. Key insights include strong refinance activity, non-QM growth, and evolving investor behaviors.

Subscribe to the Market Advantage Report to receive the data directly in your inbox: https://www2.optimalblue.com/market-advantage

Key Points Discussed:

• Tariffs and potential Supreme Court ruling on legality.
• Inflation easing to 2.7% and its effect on rate expectations.
• Private payroll contraction and small business challenges.
• Anticipated Fed rate cut and leadership turnover in 2026.
• November lock volume trends and non-QM share hitting 9%.
• Secondary market execution shifts and MSR valuation changes.

Optimal Insights Team:

• Jim Glennon, Senior Vice President, Hedging and Trading Operations
• Alex Hebner, Hedge Account Manager
• James Cahill, MSF/MSR Account Manager
• Mike Vough, Senior Vice President, Corporate Strategy
• Brennan O’Connell, Director of Data Solutions

Production Team:

• Executive Producer: Sara Holtz
• Producer: Matt Gilhooly

Commentary included in the podcast shall not be construed as, nor is Optimal Blue providing, any legal, trading, hedging, or financial advice.

Mentioned in this episode:

Optimal Blue Summit 2026 | February 23-25 | Scottsdale, Arizona

In case you missed it – Optimal Blue has announced the dates for its 2026 Summit! Join us February 23 – 25 at Talking Stick Resort and Conference Center in Scottsdale, Arizona, for a client-exclusive event packed with strategic insight and innovation. Attendees will gain early access to Optimal Blue’s latest generative AI and automation tools, dive into expert-led sessions on pricing, compliance and more, and experience hands-on demos of new capabilities. Plus, it’s a chance to connect with capital markets pros, integration partners, and mortgage insiders—all while gaining actionable strategies to maximize profitability and sharpen your competitive edge. The Optimal Blue Summit: where proven mortgage expertise meets modern innovation to shape what's next. Early bird registration is now open at Summit.OptimalBlue.com – space is limited, so register today! News release: https://www2.optimalblue.com/optimal-blue-to-host-its-2026-summit-february-23-25-in-scottsdale Registration: Summit.OptimalBlue.com

Summit - OI

Lock Loans on the Go – Mobile Locking in the Optimal Blue Mobile App

Traditional loan locking slows decisions and ties you to a desk, but borrowers expect instant answers. Optimal Blue’s Mobile Locking changes the game. With our native iOS and Android app, loan officers can access their pipeline, run pricing, and lock loans anytime, anywhere – fast, secure, and accurate. No delays. No extra cost. Just seamless mobility that enhances the borrower experience. Download the Optimal Blue Mobile App today and start locking loans on the go.

Mobile Locking

what happens if these tariffs are somehow reversed?

It's definitely a huge question, right? you would think, hey, the importers are the one who have been paying the tariffs. But if they've been raising their prices to counteract that, then they're pushing onto the wholesalers. If the wholesalers have been raising their price, they've been pushing onto the retailers. If retailers have been pushing their price, they've been pushing onto you and me.

Welcome to Optimal Insights. I'm your host, Jim Glennon, Senior Vice President of Hedging and Trading Client Services 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. It is December 8th. It's Monday, counting down the days to Christmas to the end of the year. Kind of hard to, hard to believe we're almost in 2026.

But obviously the podcast goes on and there's a lot going on in markets now with the government reopened and a lot going on that could affect our industry and interest rates. talk about that here in a little bit. We'll do a market update with James and Alex. And then of course, we've got the market advantage this time around. So as you may recall, the market advantage report comes out around mid-month.

that podcast, the Market Advantage podcast has now been combined with Optimal Insights.

So once a month, we'll have Brennan and Mike come on to talk about the highlights of the market advantage report and give you a little bit of a preview of the report before it comes out. So we'll talk to them in a minute. First, a little bit of data, the OBMMI for conventional 30 years at 6.2, so still relatively low compared to the last few years, but stubbornly above that 6 % mark. The 10 years at 4.2, so almost exactly two points lower. Again, still suffering a little bit from the Fed funds rate being high, but also just from

just the amount of debt pouring out into markets right now and sort of the lack of good demand for that. So we're still looking for that 6 % mark for mortgage rates to really see volume pick up. But we've seen really good volume in this fourth quarter, regardless, just good purchase volume. And we're actually seeing quite a few refis and cash out loans come through. So check out that data in the market advantage And a lot going on.

Finally, with the Fed meeting coming up here and some unemployment numbers next week, so we'll talk to James and Alex about that right now.

Okay, let's get right into it gentlemen. Even though we haven't had a ton of ⁓ economic releases come out recently, there is a lot to talk about going into the end of the year. I don't know where to start. So we'll start with numbers. We did get some numbers last week. We have not had an official Bureau of Labor Statistics unemployment report yet this month. We will get that next week, but we did get the private payrolls from ADP and that was finally a negative number, which I don't, can't remember the last time we saw a reduction.

in payrolls. really starting to see some weakness there and it's kind of feeding into this narrative that's out in the media that the tariffs are starting to businesses, especially small businesses, right? So the ADP focuses on private payrolls, but also a lot of small businesses use ADP for their payrolls. So they're seeing that and that's kind of what they've pointed out too, right? They've said, we're really seeing the deep cuts in businesses of less than what, 100

50 people.

Yeah, 50 individuals. Yeah, we saw that the distinction ADP demarcates a small business at 50 employees. And those businesses that reported with 50 or more employees saw a net gain of 90,000 jobs. And those with 50 or typical small businesses, they saw a decrease of about 120,000. And so that's how we landed at that negative number of about 30,000 contraction in private payrolls.

That's a huge number, especially you consider all these businesses are 50 people or less. You know, you have a six figure drawdown in those jobs. means that, you know, easy math there would be tens of thousands of businesses have lost workers and yeah, you've got tariffs. You've got also the healthcare issue that's still kind of lurking in the background of the government shutdown conversation, right? It tends to be those smaller businesses that use things like affordable healthcare.

Public health care. So yeah, really starting to see that happen. I mean, it could also just be that we're due. That's been some of the thought too, is that we're due for a slowdown in the economy. And that's going to be, that's going to be highlighted like by a drawdown in employment.

Absolutely, yeah, and that seems to be the direction from the whispers that we get in the data so far. I'm looking forward to next week. On Tuesday, we'll get that first non-farm number, the delayed November number. So looking forward to that one.

Right. And we also got some good news on the front of inflation, right? We saw CPI come in at 2.7 last week, which is continuing to drop despite, again, despite the talk about what tariffs are going to do to prices. It does seem like the consumer is holding back on spending and that may actually be bringing prices lower where folks just aren't willing to spend the money anymore. They're actually being careful about what they're paying for.

⁓ Kevin Foley has long kind of hit this question of, yeah, everyone expects tariffs to be inflationary, but if people stop spending, then you're going to actually see the inflation come down, right? And if jobs and wages are weakening, that would line up well with the story. But.

Inflation tends to be the harder problem to fix. So it's not bad to see this number creeping its way down. That may help us see, right? If keeps going down, keep encouraging our rate cut. That helps get jobs flowing again. That moves in the right direction. Nobody wants to see the pain, but it's not bad that that number has come down one way or the other.

Yeah. Unemployment ticking up a little bit, inflation ticking down. It probably means just a more efficient economy. Right? Money was really flowing there for a while. regardless of, you know, white collar, blue collar, there was just a lot of money flowing into the system. And we've had the brakes on, the Fed has had the brakes on since, you know, 2022.

Absolutely, yeah, like you said, Jim, it's been the post COVID era has been nothing if not historically abnormal. This kind of feels like a return to the typical economic business cycles that we've come to expect. ⁓ And as you said, we've been in good economic times the past five years or so, all things considered. in addition to that, it's been an incredibly loose credit environment ⁓ for big and small, we've seen.

very easy to lend with banks and it's also been ⁓ a, I would say, period of profound change in consumer credit markets as well with buy now, pay later schemes and such.

Mm-hmm.

Right. Yeah. mean, you know, folks are pulling back on some of the things that would make common sense to you. Like things like, what do they call it? Casual dining. That's kind of the first place to take a hit. Places like Chipotle, right, are starting to get beat up a little bit. So that's, you know, telling us that the working class is definitely drawing down a little bit. aren't, are just paying attention closer to what they're spending their money on.

So this week more employment info. So we're kind of stacking it up here. We've got the Joltz report, which is the job openings. What are we expecting there?

not quite sure on what we're expecting there. I think it probably a continuation of the trend that we saw with private payrolls last week as we've been talking about. kind of a blank spot for the past two, three months here. So I would expect probably something in line with the ADP payrolls that we just discussed that were released last week. what I am expecting from this is that to probably have more or outsized.

impact than we would typically expect of the JOLTS report simply because we've we've gotten going without the the non-farm payroll. So look for a flat or potentially slightly negative reading on that.

Right. Otherwise we've got the Fed meeting coming up here on Wednesday. Obviously we'll be closely watched for a decision, but the decision is likely a quarter point cut, but also the language to kind of give us some kind of clue what the rate path could be looking like in 2026. It's been so back and forth. If you listen to the, you know, the Fed heads discuss this in the media, you would think that

Absolutely. Yeah. No, all signs point to us getting a quarter point cut this Wednesday. big thing is, like you said, going to be the pals comments after the fact. think he's kind of in a entering his lame duck period he'll be out in March. But what I'm going to keep my eye on is the dissenting opinions. I think we can guarantee that there will be some dissent, you know, regardless of what the decision ends up being.

Mm-hmm.

And so it'll be interesting to see, I would expect Myron to, let's call it 50-50 chance of him dissenting and saying that he wants an even more aggressive cut. And then we've also seen dissent to the other side of those concerned about inflation. See if maybe that CPI number last week tamed any of those concerns. But I know first and foremost, Kansas City Fed president dissented on the last rate cut on inflation concerns.

between Wednesday and the next cut or pause in January, we do have one Fed governor's term, Googler, is going to come to an end. So we will have a new face next time we're in for it.

Right. And as we talked about last week and the week before, just, there's going be a ton of turnover in the Fed coming in 2026. And it's, seems a foregone conclusion that the Fed will be continuously stacked with business friendly people, right? Business friendly voters. So we will end up with a Fed that's a little bit more controlled by the white house going into next year. And that should mean lower short-term rates.

Yes. Yeah. ⁓ I think Q1 will be the most transformative as, as James pointed out, Coogler's terms ending in January. Atlanta fed president Bostic is out in February. He's retiring at the end of the month. And then we'll see Powell's tenure end in March. So, ⁓ much come the next three, four months here.

But.

Yeah, doesn't necessarily translate to lower mortgage rates. all need to remember that, it will mean a looser credit environment, hopefully a little bit of a reprieve on the business side, just allowing banks to make different types of decisions with how they use their money and be able to borrow cheaper. So potentially that brings down rates in the long run by way of either the spread between treasuries and mortgages or just the overall demand.

we a curve that actually looks healthier than it does right now, where no matter what instruments you're buying, you can get kind of the same rate of return.

All right. So moving on tariffs. We touched on tariffs a little bit earlier as it related to inflation, but we also have this looming, the Supreme court is going to be coming back to us here. We don't know exactly when, but likely before the end of the year with a decision on whether tariffs are even legal as they've been implemented by the white house. So there's been some discussion around that and some discussion around what happens if the

The court comes back and says, yes, they are illegal. There's already been, I believe Costco filed a lawsuit already saying that if that turns out to be the case, they want their money back. Basically the money that they've paid in billions worth of tariffs, they want that money back. what's the recent scuttlebutt on what happens if these tariffs are somehow reversed?

It's definitely a huge question, right? Because you would think, hey, the importers are the one who have been paying the tariffs. But if they've been raising their prices to counteract that, then they're pushing onto the wholesalers. If the wholesalers have been raising their price, they've been pushing onto the retailers. If retailers have been pushing their price, they've been pushing onto you and me. Right? So who might want to get their money back? Well, I might want my money back, but ⁓ you you push that all the way up and everyone could argue that they should get repaid. I think there is a crazy world where

Mm-hmm.

Yeah.

the importers do get repaid even though they've raised prices and so they actually make money on this, right? So that would be kind of a crazy outcome of this. It's going to be very complicated to undo. The administration has already signaled, hey, if the Supreme Court rules against us, we have other ways that we can do this. I think the Supreme Court technically could rule, yeah, you can't have the tariffs this way anymore, but

Mm-hmm.

that

they wouldn't make anyone pay it back. That's, yeah, that's definitely, that feels like a very administratively friendly decision. And I might put my money on that one. It just kind of makes sense rather than trying to figure out how to undo this whole thing.

Retro, yeah.

Mm-hmm.

Sure. So that puts the administration in the mode of figuring out how to maintain those tariffs going forward. And they've already come out almost as if they're expecting the court to rule against tariffs, that they have got other ideas on how to implement them. I believe Alex, earlier you were talking about, I believe it was section 232, which is a way to say that these tariffs are a matter of national security and that's why they need to be maintained.

Right. So the majority of the tariffs are currently in effect or blanket tariffs placed on any import from a particular country. If you remember back in April, Trump and his big white board as he revealed one by one the rates that will be charged to specific countries. an additional way that they can levy tariffs and that's via the section 232 tariffs, which essentially, can call a product needing to be produced in the United States under national security grounds. ⁓

What I think they would probably do is they would just say, every product is a national security, is it done being done on national security grounds? and they'll just do it all under this section 232 terrorists from, and from what I've read, those would be much harder to overturn because again, it's, it's quote unquote on national security grounds.

right, which is super subjective. mean, you know, especially depending on where the burden of proof lies. So it'll be interesting to see how this all plays out. does feel like, as you said, James, the way to go that wouldn't make a nightmare for the unravel would be to court rules against tariffs. So tariffs stop temporarily. White House finds new grounds to impose tariffs, keeps tariffs going. And the saga continues probably throughout this administration. And then

We see where we're at during midterm elections next year, those are working in terms of stimulating the economy or dragging the economy down or kind of maybe it's a nothing burger and we're just making good tax revenue off of some of these deals.

I mean, what a mess it would be if in the process of giving the tariff refunds, the government was spending money. Right. Like that would just totally shoot it right in the foot would be painful. But it is again, Costco is suing ahead of time. The ruling is not out yet, but they are saying, hey, we think that we should get this money back. I'm sure they'll present their balance sheets and say, this is, you know, prices that we raised or didn't. is how much we've spent and try and make

Mm-hmm.

that argument so it's very possible that if the court rules know you have to give this back that there will be probably years of legal ⁓ debate to get it out.

All right, so more on that. We'll keep watching. Look for that court decision here pretty soon. I would hope before the end of the year.

mean, nothing really on the horizon that should push, push rates one way or the other again with, you if we get a cut from the fed, which we probably will on Wednesday, don't expect that to have an immediate effect on rates. That's all built in at this point, those expectations, but do listen to the rhetoric or whatever the discussion is in the actual statement, but also in the subsequent press conference, just to see if there's any nuggets there.

such as when Powell said, far from it at the end of the last meeting, was a big deal that he said that and that you could see a retraction of that. could see something similar on Wednesday in the press conference. Anyway, keep an eye on that, but it's gonna take, I think more probably bad news in the labor sector, good news in the inflation sector to really have a meaningful effect on mortgage rates.

Yeah, Jim, just to place a little bit of emphasis on that, I went back and looked at 10-year and 30-year treasury rates, which as we know are how we build the mortgage now in our industry. And we're actually higher than we were in both the 10 and 30-year than we were in September when this rate cut cycle began. So we have yet to see those changes in short-term rates transform into meaningful declines in the long-term rates.

Right? Frustratingly so.

All right. Well, thank you gentlemen. Great discussion as always. As promised, we are going to switch over and meet with Brennan and Mike. Going to talk about the market advantage report. So as you may recall, a couple of weeks ago, we let everybody know that we are merging our two podcasts. So the optimal insights podcast and the market advantage podcasts have become one. So basically what that means is once a month, we will have the market advantage segment, which will come up here in a second. And what that's going to be is a preview.

of the Market Advantage data report. So we pull a ton of meaningful data out of all of our systems and every month we break that down into what we feel is the most meaningful and most interesting. And that report comes out sometime mid-month. So this podcast will then be a preview of that. So you'll get a preview of what December's report is going to look like here in a couple of minutes. Thanks everybody.

Hey, Brendan, pretty interesting month of data behind us here in November. Want to take us through some of the origination trends we observed?

Absolutely. let's see total lock volume for November down 25%. that's the headline. I don't think that's the right story. The story is that we're still up 17 % year over year. and this was comfortably the strongest November since 2021. right term

purchase market limited supply, affordability is still an issue. lock in effect remains a barrier. so purchase lock volumes are actually down 22 % in October, which is, you know, it's anticipated seasonally to see some decline, but we were also down 6 % year over year, despite us being in an otherwise pretty strong market from a production standpoint. So that production market's, definitely finicky.

Goodness, we have the strong performance on the refi side. Rates, what did we do in November? They were actually mostly steady, at least for the 30 year conforming index, the benchmark that's the underlying for the CME contract that we mentioned every month here. Just dropped one basis point to close the month at 6.14%, but was 53 basis points better than the same time last year.

FHA rates dropped another five bips to get below six. So five handle on FHA rates to close the month at 599. VA rates about five and three quarters. They rose nine bips and jumbo rates rose eight bips to 6.44%. I think interestingly, the 10 year treasury now getting very close to that three handle finished the month on the nose at 4 % and was down 11 bips from the same time.

or from the end of October. So what we saw is some widening of the spread between the 10-year and the mortgage rate with the mortgage rate basically staying flat in the 10-year, picking up 10 BIPs. So would have liked to see that flow through to our borrowers, but not the case. ⁓ So maybe a good story for us to tighten up here as we look towards the end of the year.

A couple of odds and ends in terms of production, FHA and non-conforming production picked up share at the expense of conforming and VA lending. think that sort of follows what we saw on the rate side in terms of where we saw improvements across products. PUD development, the share of planned unit development as a percentage of our total rate block volume picked up a little bit. It's a really good proxy for us for new construction. So it picked up, but it's still well behind where it was at the same time last year. think at that point we were seeing roughly one in three.

of the loans coming in as pods in our lock data set nowhere near that now just down I think more like 20 to 25 percent. So again sort of a slowing in that new construction space. I do think the new home construction a welcomed improvement in terms of affordability and supply in the market. If we continue to see new builds that would certainly help with

more options for homeowners or potential homeowners. And, uh, lastly, the non QM March continues. Non QM share hit 9 % for the first time since we've been tracking it in the rate lock volume in November. That's the highest we have ever seen. So, uh, just continue to see strong demand for these more esoteric products or sort of new products to the market that aren't conforming with, agency guidelines. So we'll, see if that trend continues. think.

as we've talked about on previous shows, we certainly think it will.

Awesome, I'll jump in and round us off with some secondary data. So best effort mandatory spread, a huge proxy of the industry for looking at the profitability of hedging and executing in the secondary market. Saw those numbers almost flat month over month. The 30-year conforming best effort mandatory spread down two basis points from 33 to 31 basis points, while the 15-year was up three basis points 32 basis points compared to 29 last month.

loans were up about four basis points on average, up at 15 basis points. Now, one of the ways that we calculate that metric, at the point of loan sale, we look at the best effort price on a loan compared to where it's actually sold in the market. And what we do to make sure that we don't, we take out defensible numbers, we actually back out cover. So the difference in the rank one and the rank two spread. And we do that to make sure that, if someone has a screaming hot bed or there's a misbid or.

if somebody is selling to a buyer who wants to pass through a CRA pay up that's not muddying the waters there. So when you look at these numbers, you should always think that there's probably a little bit extra on top of that if you're making that decision from going from best effort to mandatory. And we also exclude spec loans types of niche products as well where you can see a much larger spread. Another trend that we're observing is where folks are actually executing these loans in the secondary market.

And so this month we saw a pretty decent change, pretty large change in the amount of loans sold to the cash window from 22 % to 25%. And, you know, if you back up, you know, maybe about a year ago was about a third, a third, a third between cash bulk MBS securitizations. saw, we've seen MBS securitizations rise last six months in a row. It actually dropped the percentage.

and a half this month, but it ended this month at 45 % of the originations that we saw went through an MBS securitization. Now think a lot of that has to do with maybe some market share wins by some of the larger players out there and some banks as well. folks who have the of operational expertise in place to create those MBS securitizations. So it'll be interesting to see how that kind of shakes out going in December. We also saw this month,

the amount of loans sold to the rank one price during a loan sale dropped 2%. This hit a high water mark for us since we started tracking at 81 % last month and dropped to 79 % this month. I think what you might be seeing there is lenders are starting to look at their end of year kind of like deliveries sent to lenders, sent to investors. And lenders have certain covenants or representative mix that they're trying to hit with their investors. And typically investors will review this on like a quarterly or annual basis.

And you might be seeing some activity there from lenders where they're like, hey, I've sent too much of a certain type of geo or loan production type to an individual investor. And I might not take the best price if it's a basis point or two basis points higher. And I'm trying to manage that overall data set or that relationship with an investor there. also saw MSRs dropped this month. makes sense, right? Given the fact that rates dropped on average this month. But just a small decrease. saw

a three basis point drop MSRs of loans sold this month, about 1.09 as the about down three basis points from 1.12 the previous month. This is still about four and a half multiple on new servicing, which is a very for servicing even though there was a decrease in rates. And lastly, our investor count.

has held steady again at the fourth month in a 11 investors that are being individual loan on a loan sale. Now, it'll be interesting to see, last December we saw a drop of about down 10. I think it was nine investors. And that'll be interesting to see if we see that same trend as we get close to year end. And you might see investors that just haven't hit their capacity for buying loans. And so that's trend I'm watching out for next month as well.

Thanks everybody and we'll talk to you next month.

All right, that is it for today. Thanks so much for joining us, everybody. James, Alex, Brennan, Mike, thanks so much for the insights. And that's it. 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.