Michael Youngblood joined the show to discuss investing in mortgages with the evolution of the U.S. mortgage market. He draws on more than four decades of experience in mortgage banking, securitization, and housing finance. We explored the key causes of the 2008 financial crisis, why falling home prices caught investors off guard. Michael explained the risks and opportunities of investing in mortgage-backed securities, the differences between MBSs, CMOs, and REMICs, and why prepayment risk remains a major consideration for investors. We also discussed housing affordability challenges, FHA loans, down payment hurdles facing first-time buyers, potential future changes to mortgage regulations, and the outlook for both residential and commercial real estate financing as demographic shifts, interest rates, and post-COVID trends continue to reshape the market. Today we discuss... 

• How declining home prices in 2007–2008 triggered a surge in mortgage defaults and helped spark the financial crisis.
• Why investors, lenders, and regulators failed to anticipate the severity of the housing market collapse.
• How banks manage mortgage risk by selling or securitizing loans while retaining their highest-quality borrowers.
• The key risks investors face when investing in mortgage-backed securities, including prepayment and credit risk.
• The differences between mortgage-backed securities (MBSs), collateralized mortgage obligations (CMOs), and REMICs.
• Why mortgage market innovation has slowed significantly since the 2008 financial crisis.
• Exploration of potential future changes to mortgage products and regulations aimed at improving housing affordability.
• How adjustable-rate mortgages could be expanded without returning to the risky lending practices that contributed to the housing crisis.
• The challenges self-employed borrowers face when trying to qualify for mortgage financing.
• How falling interest rates could trigger a new wave of mortgage refinancing activity.
• Housing affordability challenges driven by rising home prices and large down payment requirements.
• How commercial mortgage lending differs from residential lending in underwriting and risk management.
• The growing role of family wealth transfers and financial assistance in helping younger generations purchase homes.
• Michael shares his outlook on housing affordability and why mortgage financing remains attractive relative to many other forms of borrowing.

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Michael Youngblood, Ph.D. 

Principal, Housing and Mortgage Research, LLC, 

Arlington, Virginia 

“Housing Affordability” has become a leading issue for the U.S. consumer in 2026. Are  mortgage rates contributing to the housing affordability crisis? 

The current administration is deeply concerned about affordability in general and about housing  affordability in particular. As mitigants, the Director of the Federal Housing Finance  Administration (FHFA) floated the concept of a 40-year conforming mortgage loan, which did  not gain traction. He instructed both Fannie Mae and Freddie Mac to acquire $200 billion of  mortgage securities, in the hope of lowering mortgage interest rates. In response, they have  increased their periodic purchases of mortgage securities. In addition, both of these government sponsored enterprises are reviving the concept of a prepayment-protected mortgage loan, as a  cheaper alternative to the 30-year fixed-rate mortgage loans. (The prepayment protected mortgage loan was introduced by the flamboyant Angelo Mozillo in 1996.) 

However, these worthy efforts beg the question: Are mortgage rates contributing to the housing  affordability crisis? No, is the short answer. Let us consider nominal, real, relative, and absolute  mortgage interest rates. 

Nominal 

The nominal interest rate on 30-year fixed-rate conforming mortgage loans reached 6.30% in the  week of 17 April 2026. This is a much higher rate than the lowest mortgage interest rate of the  COVID era, which was 2.65% on 7 January 2021. But it is not high relative to the mortgage  interest rate in this decade: Since 2021, it has averaged 6.35%. And since 1962, it has averaged  7.69%. (The highest mortgage interest rate was 18.65% in the week of 9 October 1981.) 

Real 

The real mortgage interest rate reached 3.01% in the week of 17 April 2026, based on the March  2026 inflation rate of 3.29% (CPI-U). This is only 9 basis points (bps) higher than the average  real mortgage interest rate since 1962, which was 2.92%. (One bp is one-hundredth of 1%.) 

Relative 

Furthermore, the nominal mortgage interest rate is only 201 bps higher than yield on the ten-year  U.S. Treasury note, which is the benchmark for U.S. mortgage loans and securities. The spread  of the nominal mortgage interest rate to the ten-year U.S. Treasury note has averaged 185 bps  since 1962. So the spread today is only 16 bps higher than the long-run average.

Absolute 

The American homeowner – Jane Q. Public – cannot borrow in the capital markets. Jane does not  have a credit rating from Standard & Poor’s or Moody’s or any other rating agency. (Jane has a  credit score of 740, but this does not give access to the capital markets.) 

Facebook, that is Meta Platforms, Inc. (Meta) can borrow in the capital markets. Meta is rated  AA- by Standard & Poor’s and Aa3 by Moody’s. Last year, Meta issued a 30-year bond, the  5.625% due 11/15/2055 [CUSIP 30303MAE2]. Last week, this bond traded at a price of $94.37,  to yield 6.03%. 

By comparison, Jane Q. Public can borrow for 30 years with a conforming mortgage loan at an  interest rate of 6.30% - only 27 bps more than Meta. Absolutely, Jane has a bargain – thanks to  the highly efficient system of U.S. mortgage finance, which is anchored by the government sponsored enterprises. 

How is this possible? 

Securitization! Securitization is the process by which illiquid financial assets and liabilities are  transformed into capital market instruments. 

A single-family mortgage loan, which consists of a promissory note and a lien on a parcel of real  estate, is inherently illiquid. It consists of a six inch high stack of paper. 

Securitization pools together many mortgage loans, obtains a guarantee from a government sponsored enterprise or equivalent, and distributes the guaranteed security into the capital  markets. 

There are ~$13.8 trillion of U.S. 1-4 family mortgage loans outstanding and $9.5 trillion of U.S.  mortgage securities, as of 4Q2025. Hence, the securitization ratio is 73%. This ratio has  exceeded 50% since mid-1991. 

The U.S. capital markets consist of equity ($73.1 trillion) and debt instruments ($60.9 trillion). 

Debt is dominated by $30.3 trillion of U.S. Treasuries, representing 49.7% of the total. Mortgage  securities represent 15.6% of the total. 

House Price Appreciation 

The rapid appreciation of house prices – not mortgage interest rates – has caused the housing  affordability crisis. 

Since COVID, house prices have appreciated by 58% whereas personal incomes have risen by  37% - there is a 21% gap between these two rates of change.

The median house price is $408,800. To buy this house with a 30-year, fixed-rate, conforming  mortgage loan at 80% loan-to-value ratio (LTV), one needs to borrow $327,040. The monthly  payment of $2,024 is affordable for the average $68,392 income. It results in a 35.5% housing  ratio, vs. 43% statutory maximum. 

To buy this house and finance it with an 80% LTV loan, one needs an $81,760 down payment.  Here is the problem. The down payment represents more than a year of income to Jane Q. 

There is an alternative, from the Federal Housing Administration (FHA). An FHA-insured  mortgage loan at 97% LTV requires a $14,308 down payment, which is within reach of Jane Q. 

© 2026 Housing and Mortgage Research, LLC