By the Numbers
A dip in net MBS supply as paydowns increase
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MBS net supply took a dip in September primarily due to rising paydowns from refinancing mortgages. Supply is also likely to be low in October since prepayment speeds should increase again. However, things should rebound to the $20 billion to $25 billion range in November and December. Overall supply is on track to average roughly $16.5 billion a month this year, which would be the lowest since 2015. However, supply should increase to roughly $20 billion a month over the next two years if industry home sales expectations are realized.
Net supply has generally been close to model projections in 2025, but the model failed to capture the drop in supply in September (Exhibit 1). Net supply often dips when prepayment speeds increase since some loans that prepay are not re-pooled until the following month. So paydowns increase while gross issuance holds relatively steady. This happened in September—of the roughly $11 billion drop in supply, $8 billion was due to faster prepayments. However, the model expects this drop to occur next month.
Exhibit 1. Net supply projections
Static projections hold August 2025 hole sales constant. Fannie Mae’s and MBA’s September 2025 Housing Forecasts used for those net supply projections.
Source: Fannie Mae, Freddie Mac, Ginnie Mae, Mortgage Bankers Association, Santander US Capital Markets.
For 2025 net supply should end the year with a monthly average of about $16 billion to $16.5 billion (Exhibit 2). There is little sensitivity in 2025 to home sales forecasts since most of the year is settled. Supply should increase slightly, to $17.6 billion per month, if home sales remain at August levels. But home sales forecasts from Fannie Mae and the MBA suggest that issuance could increase to a range of $19 billion to $19.5 billion a month in 2026 and $21.5 billion a month in 2027.
Exhibit 2. Net supply projections
2025 is an average of actual net issuance through September and projected net issuance from October through December. The first column holds home sales constant at the August 2025 level. Fannie Mae and MBA home prices forecast in September 2025. Fannie Mae home price forecasts do not yet cover 2027.
Source: Fannie Mae, Freddie Mac, Ginnie Mae, Mortgage Bankers Association, Santander US Capital Markets.
The net supply model is driven primarily by new and existing home sales. The portion of new home sales that are placed in agency MBS contribute directly to net supply. Existing home sales also contributes if the new loan has a larger balance than the loan being paid off. Cash-out refinancing also contributes since the new loan has a larger balance than the loan being paid off. Mortgage rates are also used to estimate the effect of increases and decreases in rate and term refinancing, which can temporarily affect net issuance.
A longer-term view of the model shows that it has captured most of the changes in supply levels for several years (Exhibit 3). This graph uses a 3-month moving average to smooth out the month-to-month volatility. The biggest discrepancies are in 2020, 2021 and 2022 when supply reached record levels. Some of this may be due to borrowers mortgaging properties that had been owned outright to take advantage of record low rates during the pandemic
Exhibit 3. Agency MBS monthly net supply predicted vs. actual
Three-month moving average applied to all series.
Source: Fannie Mae, Freddie Mac, Ginnie Mae, Mortgage Bankers Association, Santander US Capital Markets.
Over the last few years, the model has been close to actual, although biased slightly high (Exhibit 4). It was generally a little low before and during the pandemic, with the worst miss coming in 2021 when MBS issuance peaked.
Exhibit 4. Agency MBS monthly net supply predicted vs. actual
Source: Fannie Mae, Freddie Mac, Ginnie Mae, Mortgage Bankers Association, Santander US Capital Markets.
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