Talking Rates: Sales Meeting – Part II

Technical Scenarios

How Loan Officers Can Explain

the 2026 Mortgage Rate Surge

    

This article is Part II of a two-part series on the surge in mortgage rates. In Part I, we discussed simple questions. For Part II, we've selected several technical scenarios we think will interest our newsletter subscribers. We edited the transcript for clarity and length. Questions are emboldened.

Recently, Lenders Compliance Group was asked to host a meeting for a mortgage lender's sales team. 450 loan officers from across the country attended. Jonathan Foxx, our Chairman and Managing Director, hosted the meeting. We recorded it and obtained the transcript. We did not charge a fee. The format was a question-and-answer session in which loan officers asked us how to explain the surge in interest rates to their borrowers.  

Jonathan covered many scenarios, from simple to complex, reflecting borrowers' familiarity with financial conditions. We placed considerable emphasis on ensuring that the LOs' responses would comply with regulatory guidelines regarding contact with the public. The meeting lasted an hour, after which many LOs sent us additional questions.  

We have scheduled another compliance-related meeting with this lender on a different topic. We would like to schedule one with you! If you want us to host a free meeting, we would be glad to discuss the topic.  

Please email us here and tell us about your meeting topic! 

For this Part II article, we selected several technical questions we think will interest our newsletter subscribers. We edited the transcript for clarity and length. Questions are emboldened.   

This two-part article is separated into simple and technical scenarios, as follows: 

• Part I: Simple Questions
• Part II: Technical Questions     

TECHNICAL EXPLANATIONS 

Many borrowers follow the markets closely, so drop the analogies and explain how mortgages are actually priced. Depending on the borrower's level of understanding, four ideas may carry the conversation. These are the benchmark, the spread, the Fed's role, and the decisions in the borrower's control. 

Together, they usually cover the general range of concerns. But if you are unfamiliar with the technical side, do yourself a favor and read up on it; and if you don't know an answer, tell the borrower you will check – and get back to them promptly. 

The Benchmark 

Question: I work with high-net-worth borrowers. These people follow the market constantly. Yet they come to me for more feedback, especially when they're deciding on financing. I need a way to start the discussion that helps break the ice. What would you suggest? 

Answer: I would start with something easy to test the waters. I would say: 

"A mortgage rate is driven mostly by the 10-year Treasury yield, not the Fed funds rate. A 30-year mortgage has a 30-year term, but most are refinanced or paid off through a sale within about 7 to 10 years. Investors therefore price them against intermediate-term Treasuries. With the 10-year near 5.29% in early October, mortgage rates followed it up." 

It may seem counterintuitive to tell them what they probably already know, but start by showing you are going to tell it like it is, no matter what. Sophisticated borrowers – like all borrowers – want to work with LOs who keep it real! 

The Spread 

Q: I have a borrower who watched a YouTube video on the mortgage process and now thinks he's an expert! I respect his diligence. He even knew about negative convexity, which I never knew. So maybe he is an expert! But he can't figure out how the spread works. I tried explaining it. It didn't make sense to him. How can I walk him through how the spread works?

A: The spread is the part most borrowers have never heard of. With the 30-year mortgage at 7.28% and the 10-year at about 5.29%, the gap is roughly 2 points. Historically, it has averaged closer to 1.7 points.

Talking Rates: Sales Meeting – Part I

Simple Scenarios

How Loan Officers Can Explain

the 2026 Mortgage Rate Surge

    

Recently, Lenders Compliance Group was asked to host a meeting for a mortgage lender's sales team. The meeting was attended by 450 loan officers from across the country. Jonathan Foxx, our Chairman and Managing Director, hosted the meeting. We recorded it and obtained the transcript. We did not charge a fee. The format was a question-and-answer session in which loan officers asked us how to explain the surge in interest rates to their borrowers. 

Jonathan covered many scenarios, from simple to complex, reflecting borrowers' familiarity with financial conditions. We placed considerable emphasis on ensuring that the LOs' responses would comply with regulatory guidelines regarding contact with the public. The meeting lasted an hour, after which many LOs sent us additional questions. 

We have scheduled another compliance-related meeting with this lender on a different topic. If you would like us to host a free meeting, we would be glad to discuss the topic and schedule it. 

Please email us HERE and tell us about your meeting topic!

For this article, we selected several questions that should interest our newsletter subscribers. We edited the transcript for clarity and length. Questions are emboldened. The questions are grouped from simple (Part I) to technical (Part II). 

This two-part article is separated into simple and technical scenarios, as follows: 

• Part I: Simple Questions
• Part II: Technical Questions   

INITIAL OPENING COMMENT  

Mortgage rates have jumped sharply this fall, and borrowers are noticing. According to Freddie Mac, the average 30-year fixed rate reached 7.28% as of October 1, 2026. That is the highest level since November 2023, up from 7.03% a week earlier and 6.34% a year ago. 

For loan officers, this creates a communication challenge. A first-time buyer often needs a short, reassuring explanation. A borrower who follows the markets wants to understand how the pricing actually works. In this meeting, I will discuss how to respond to both types of borrowers with a possible script for each. 

SIMPLE QUESTIONS

The Bond Market  

Question: How do I explain the bond market's impact on mortgage rates?  

Answer: I think there are essentially two ways to answer. The first is what I would call a "one-sentence version." You could say:  

"Mortgage rates follow the bond market, and right now investors are demanding higher returns to lend money long-term, so borrowing for a house costs more than it did a few months ago."

But you may need a slightly longer version. In which case you could say:  

"Most people assume the Federal Reserve sets mortgage rates. (A quick, friendly correction builds credibility.) The Fed doesn't set mortgage rates directly, but they closely track the 10-year Treasury yield. Right now, both are moving up. The Fed raised the federal funds rate at its September 17^th meeting, and the 10-year Treasury yield rose to about 5.29% on October 1^st."  

This may be a bit too complex to understand, so provide an analogy, such as:  

"Think of your mortgage as a loan that gets packaged and sold to investors. Those investors could buy safe government bonds instead. When government bonds pay more, investors expect mortgages to pay more too, or they'll take the safer option. Right now those bonds pay over 5%, so mortgage rates have moved up with them."

How to Prepare for a Global Recession

YOUR COMPLIANCE QUESTION 

YouTube

I am the CFO of a Mortgage REIT, a residential mortgage lender, and a mortgage servicer. Our board met to discuss what could happen to our mortgage originations in the event of a global recession. Our secondary and capital markets department is already gearing up for a recession. Our loan originations were affected by rising rates – and not in a good way. Our margins have been compressed, and hedging is difficult. 

Your name came up in the meeting, as one of the board members knows you. The thought was that you have many clients and probably have a good idea about the overall condition of the mortgage banking industry and how it can prepare for a recession. Because of your place in compliance and risk management, she feels that you could shed light on how we can prepare for a recession. Thank you for considering our question! 

How can a mortgage lender protect itself in a global recession? 

OUR COMPLIANCE SOLUTION

AI POLICY PROGRAM FOR MORTGAGE BANKING™  

Our AI Policy Program aligns with Freddie Mac's AI governance requirements for Freddie Mac Sellers/Servicers. Responsible AI practices can help align AI system design, development, and use with applicable legal and regulatory guidelines. 

Our AI Policy Program consists of the following policies:  

1.      Artificial Intelligence Governance Policy

2.      Artificial Intelligence Use Policy

3.      Artificial Intelligence Workplace Policy

4.      Artificial Intelligence Credit Underwriting Policy

5.      Artificial Intelligence Do & Do Not Policy

6.      Artificial Intelligence Ethics Policy

7.      Artificial Intelligence Vendor Management Policy  

Contact us for the presentation and pricing!  

RESPONSE TO YOUR QUESTION 

Our clients often discuss how their compliance failures result in direct financial losses. During a period of financial stress, a lender scrambling to address compliance deficiencies while also managing credit losses and liquidity pressures faces a compounded crisis that can accelerate failure. In this article, I want to address your specific question about what happens in mortgage banking in a global recession and how to prepare for it. 

Compliance Amplifies Everything 

Let me state at the outset that compliance during a recession amplifies everything! Specifically, in a recession, the compliance-stability connection intensifies because: 

• Regulators increase examination frequency and scrutiny, 
• GSEs conduct more aggressive post-purchase file reviews, 
• Borrower complaints rise sharply, triggering CFPB investigations, 
• Desperate borrowers and originators increase fraud risk, making compliance controls more critical, 
• Investors have less tolerance for defects and push repurchases more aggressively, and 
• State attorneys general become more active in mortgage enforcement. 

A lender entering a recession with a strong compliance foundation is dramatically better positioned than one carrying hidden violations that regulators and investors are about to discover. 

Fundamental Rule 

Here's the fundamental rule to planning for a recession: 

Lenders who prepare during good times survive recessions;

lenders who assume good times last forever do not. 

The 2008 crisis wiped out hundreds of mortgage companies that were profitable just 18 months earlier. The ones that survived – and thrived afterward – had built conservative balance sheets, diversified channels, and operational flexibility long before the storm arrived. 

Let's zoom out to the implications of a worldwide recession on mortgage banking. Understanding its impact on the banking ecosystem will give us a perspective on how a lender can protect itself in a recession.

The Comeback of Portable Mortgages

AUDIO

SUBSTACK

QUESTION 

Our loan committee wants to originate portable mortgages. I am an old school guy! Is this the new gimmick to generate sales? I don't know, but it doesn't make much sense to me. When I was with Chase back in the eighties, there was a rollout similar to a portable mortgage. Well, it crashed and burned! Yet, now it's back. 

The whole deal mostly rests on the lock-in effect. You should explain it to your readers. And, contrary to the hype I'm hearing, the portable mortgage can lead to increased risk, and prices can go up. On top of that, there's no secondary market. 

Are portable mortgages yet another gimmick to generate sales? 

SOLUTIONS 

We recommend our Compliance Reviews. 

Comprehensive and responsive compliance reviews provide a deep dive understanding of strengths and weaknesses in the implementation of state and federal banking laws, rules, regulatory guidelines, investor expectations, and Best Practices. 

RESPONSE 

I understand your concerns, but I would not assert that private enterprises and government entities are concocting some grand scheme in considering a comeback of portable mortgages. As usual, market histrionics are fluttering about like untethered balloons. 

Granted, many features of portable mortgages pose risks for both homeowners and investors. 

Your memory of the portable mortgage offered by Chase Home Mortgage in the late eighties is correct. So, the basic structure of the portable mortgage goes back to that time. Chase viewed it as experimental in the sense that it was more of a prototype; that is, it was notionally a portable fixed-rate mortgage. 

However, true portability has never been achieved in this country. This is because of the prevalence of "due-on-sale" clauses that require the loan to be paid off when a home is sold. I remember that E-Trade offered a version in the early 2000s as a portable "option." Around that time, my firm provided compliance guidance to E-Trade in its development of mortgage banking compliance, but a compliance review of the portable "option" was not in our remit. The fact is, portable mortgages have remained niche products, at best. And for good reason, which I will explain shortly. 

One reason it did not catch on is obvious: the U.S. mortgage industry's structure, in which loans are often sold to investors or entities like Fannie Mae and Freddie Mac, has historically not supported portability. 

No portable mortgages are currently allowed by Fannie Mae and Freddie Mac, but the Federal Housing Finance Agency (FHFA) is now actively evaluating whether to implement them in the future. Current news reports that the FHFA is working with Fannie Mae and Freddie Mac to determine how to make these loans possible in a safe and sound way, which strikes me as quite a heavy lift. Currently, Fannie and Freddie only allow fixed-rate loan transfers in limited situations, such as due to the death or divorce of the original borrower. 

The "hype" you are hearing concerns the GSE approval of portable mortgages, based on the claim that they could make it easier for homeowners to move and keep their lower interest rates, thereby unlocking more homes for sale. Maybe so. Then again, maybe not. 

Let's tack down a few important details about the structure of portable mortgages. 

A portable mortgage is a home loan that allows a homeowner to transfer their existing interest rate and terms to a new property when they move. In theory, this can save the homeowners money on closing costs and help them avoid taking out a new loan at a potentially higher interest rate. Nevertheless, the new property must meet the lender's criteria, and the homeowner must requalify financially. 

PORTABLE MORTGAGE TRANSACTIONS 

Here is a brief outline of how the portable mortgage works: 

·       Transferring the Loan 

When selling one home and buying another, the existing mortgage is "transferred" to the new property.