Quarterly mortgage market summary
Mortgage securitizations increased 11% in the second quarter (Q2) 2025 on a year over year basis but remain suppressed as a result of persistently high interest rates and general pressure on the affordability of new homes. Securitization volumes of new agency mortgages (Fannie Mae, Freddie Mac, and Ginnie Mae) were $301 billion for Q2, based on estimates from Milliman M-PIRe Securitization and Valuation Software.
Mortgage lenders returned to profitability during the quarter, with the average lender gaining $950 for each loan originated in Q2 2025, the highest quarter in recent years.1
Despite the Federal Reserve’s quarterly report indicating a growing strain on consumers as aggregate delinquencies increased along with the total amount of consumer debt accumulated,2 disposable personal income increased annually at 4.6%,3 outpacing the current annual 2.7% pace of inflation.4 Agency mortgage loan delinquencies held nearly constant year over year, decreasing from 4.0% in Q2 2024 to 3.9% in Q2 2025.5
In the absence of material shifts in employment-rated indicators, we anticipate similar origination trends for the remainder of 2025 as interest rates and inflation remain elevated. We expect that lenders will have limited profitability for the second half of the year as seasonal purchase patterns drive down originations.
Purchase and refinance origination trends
Based on data from Milliman M-PIRe, single-family agency mortgage securitizations rose 10.6% year over year from $273 billion in Q2 2024 to $301 billion in Q2 2025. This increase was driven almost exclusively by a pick-up in refinance activity, which increased 63% year over year, whereas purchase mortgages decreased by 1% year over year. For the same period, the 30-year mortgage rate decreased 21 basis points, averaging 6.79% in Q2 2025. This is a four-basis point decrease from Q1 2025.
Figure 1: Agency mortgage securitizations ($ billions) and the 30-year mortgage rate
Source: Milliman M-PIRe, FRED
The primary-secondary (30-year mortgage to 10-year Treasury) spread is down 12 basis points year over year; however, it is up five basis points from Q1 2025, the first quarterly increase since Q2 2023.6 The primary-secondary spread has grown over the last several years as the 10-year Treasury yields have risen. If it remains correlated with Treasury yields, a decrease in those yields will create additional mortgage rate relief as the spread also decreases.
Figure 2: The primary-secondary spread
Source: FRED
Existing home sales in Q2 2025 were flat year over year, whereas sales of new homes were down 4%.7 Although there is a downward trend in new home sales, we also observe a rise in new home inventory, which has increased 8% since Q2 2024. Both single-family housing permits and starts are down 6% and 7% in Q2 2025 on a year-over-year basis, respectively, indicating potential headwinds for future new home sales. But a downward trend in interest rates will likely boost purchase activity, given heightened inventory levels, and lead to increases in construction activity.
Figure 3: Existing and new home sales annualized (millions)
Source: Moody’s Analytics
Figure 4: Single family starts annualized (millions)
Source: Moody’s Analytics
According to the Mortgage Bankers Association (MBA), applications to refinance a home were up 43% from Q2 2024 to Q2 2025. Applications for purchase were up 14%, returning to levels observed in 2023.8 The increase in refinance applications is being driven by the continued decline in the 30-year mortgage rate, whereas the increase in purchase applications is being driven by the additional inventory and, to a lesser extent, the declining 30-year mortgage rate. The industry awaits another meaningful drop in interest rates similar to the short-term event in the third quarter of 2024 when refinance applications experienced a short-term up-tick. During that short-lived event, lenders and consumers alike benefited from the first meaningful opportunity to originate rate-term refinance loans in more than two years.
Figure 5: MBA purchase application index (by week)
Source: MBA
Figure 6: Refinance application index (by week)
Source: MBA
Mortgage lenders and their financial performance
In Q2 2025, mortgage lenders earned $950 for every loan originated in the quarter.9 This is an increase from $693 in Q2 2024. This increase is a positive sign that lenders are continuing to recover from the past several years, which marked a tumultuous time for mortgage lending driven by high inflation and the Federal Reserve’s response.
Figure 7: Net income per originated loan
Source: MBA
Consumer health and the lending environment
The overall economy remains relatively strong with job gains throughout Q2 2025 and the unemployment rate ending the quarter at 4.1%.10 Unfortunately, total household debt continues to increase, with the total consumer debt load rising 3.3% from Q2 2024 to Q2 2025.11 While pundits have been predicting that the additional stress of debt and the end of deferrals on student loan payments are beginning to cause consumers financial distress, agency mortgage loan delinquencies have actually decreased from 4.0% in Q2 2024 to 3.9% in Q2 2025.
Figure 8: Conventional and government deliquency rate (30, 60, 90+ days deliquency excl. foreclosure)
Source: Moody’s Analytics
In Q2 2025, bank lenders reported net tightening of credit standards on nonconventional loans while those same bank lenders slightly loosened their credit standards for conventional mortgage loans.12 This trend has been similar over the last several quarters, following a period of significant tightening by banks in 2023 and early 2024. Appetite for nonconventional loans is much stronger outside of the bank community, with insurance companies increasing their investment holdings and securitization volumes growing year over year.13
Figure 9: Percentage of lenders tightening credit
Source: Moody’s Analytics
At the conclusion of Q2 2025, consumers’ expectations regarding inflation in five years had increased to 4.0% compared to 3.0% at Q1 2024.14 This reading exceeds consumer sentiment through the post-COVID rate hike period, indicating that consumers believe government policies may drive materially higher prices for consumers in the medium term.
The upward trend of home prices appears to have halted in Q2 2025, with homes not appreciating at all from Q1 2025.15
Figure 10: FHFA home price index (base of 100 in Q1 1991)
Source: Moody’s Analytics
Looking ahead
Fannie Mae is forecasting decreases in refinance mortgages for Q3 2025, followed by an increase in Q4 2025. MBA’s refinance forecast is fairly flat. However, both MBA and Fannie Mae are forecasting an increase in purchase mortgages in Q3 2025 followed by a decrease in Q4 2025, following seasonal trends. These forecasts put annualized mortgage production dollar growth on track for a 20% increase from 2024 to 2025. Overall, the outlook points to moderate growth driven more by stable purchase activity and a rebound in refinance lending.
These production forecasts are heavily dependent on mortgage rates. The macroeconomic landscape, along with potential impacts of U.S. tariff policies, create meaningful uncertainty about the mortgage rate levels over the next several quarters. MBA anticipates that mortgage rates will end the year at 6.5%, slightly lower than they finished 2024, and Fannie Mae sees rates dropping to 6.4% by year-end, again slightly lower than where they finished 2024.
Both MBA and Fannie Mae forecasts anticipate modest rate relief that could help support the ongoing recovery of mortgage production and improve lender financial performance heading into 2026.
1 Mortgage Bankers Association. (2025, August 19). Mortgage bankers performance report - Quarterly and annual. Retrieved on October 9, 2025, from https://www.mba.org/news-and-research/newsroom/news/2025/08/19/imbs-report-production-profits-in-second-quarter-of-2025.
2 Center for Microeconomic Data. (2025, Q2). Household debt and credit report. Federal Reserve Bank of New York. Retrieved on August 14, 2025, from https://www.newyorkfed.org/microeconomics/hhdc.html.
3 St. Louis Federal Reserve. Disposable Personal Income. Retrieved on October 9, 2025, from https://fred.stlouisfed.org/series/DPI.
4 U.S. Bureau of Labor Statistics. 12-month change, Consumer Price Index. Retrieved on October 9, 2025, from https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm.
5 Moody’s Analytics. (2025). Data Buffet Retrieved on October 9, 2025, from https://www.economy.com/products/tools/data-buffet.
6 Federal Reserve Bank of St. Louis. 10-Year Constant Maturity. Retrieved on August 27, 2025 from https://fred.stlouisfed.org/graph/?g=1KFLF.
8 Mortgage Bankers Association, op. cit.
9 Mortgage Bankers Association, op. cit.
10 Economic News Release. Civilian Unemployment Rate. U.S. Bureau of Labor Statistics. Retrieved on October 9, 2025 from Civilian unemployment rate. https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm.
11 Center for Microeconomic Data, op. cit.
12 Moody’s Analytics, op. cit.
13 National Mortgage News. (2025, August 13). Favorable tailwinds drive growth in non-QM securities. Lee, Spencer. Retrieved on October 9, 2025 from https://www.nationalmortgagenews.com/news/non-qm-mortgage-backed-securities-see-sustained-q2-growth.
14 University of Michigan. Surveys of Consumers. Retrieved on October 9, 2025 from Tables and CSVs - Surveys of Consumers. https://www.sca.isr.umich.edu/tables.html.