Demographics, Defeasance, Return of ARMs, and Rocket LFICO Prepay Paradox

Podcast: Baird Fixed Income Insights: Convexity Pulse · Kirill Krylov

Opublikowano: 2026-10-19

In this week’s Convexity Pulse, the very real, decidedly non-imaginary Steven Scheerer rejoins Kirill Krylov so they can discuss how changing demographics and emerging mortgage structures could reshape housing turnover and agency MBS prepayments. They examine why rising household dissolution among aging homeowners may eventually weaken the mortgage lock-in effect, and whether defeasance could allow borrowers to unlock the economic value of low-rate mortgages without conventional prepayment. The episode also explores the resurgence of hybrid ARMs as an affordability tool and the potential implications for agency issuance, along with the unusual two-sided prepayment profile of low-FICO Rocket-serviced collateral.