Pulte Pulls the Plug on GSE Release? Are LDI and UWMC Underwater?

November 10, 2025 | In this edition of The Institutional Risk Analyst, we return to the world of residential mortgage finance as Q4 2025 grinds to an end. The FOMC has cut mortgage rates twice in 2025, yet the rate on 30-year fixed rate mortgages remains about 6%. More important, the Treasury yield curve is backing up even as markets debate the likelihood of the next cut in the target for the market formerly known as "federal funds."

Mortgage lenders periodically front-run market rates and push loan coupons lower, but this only exacerbates an environment where many lenders are losing money on every loan they sell. Volumes were up in October, as shown in the chart below from SIFMA, but profitability remains elusive in a market where pricing discipline has been abandoned in favor of capturing volumes.

Home price appreciation has turned negative in many markets around the country, although the Mortgage Bankers Association is still projecting that prices will rise by 1% in 2025 but decline in 2026. The tricky thing about average prices is that the inferior assets in the cohort tend to turn first, but the more attractive assets may continue to appreciate into next year. Fannie Mae issued a forecast with a 2.8% annual increase in home prices for 2025 and a 1.1% increase in 2026. 

The major homebuilders have been aggressively buying down loan coupons in an effort to clear completed inventory, but lower interest rates are really the only solution when it comes to clearing the backlog of new homes in many southern markets. But how low are interest rates likely to go given the growing unease in the global credit markets?

Of note, as of late 2025, approximately 3% of U.S. mortgaged homes are considered "underwater" (meaning the homeowner owes more on the mortgage than the home is worth). As home prices correct, this number will rise significantly, leaving many conventional lenders facing the prospect of repurchase demands from the GSEs. But as we discuss below, many nonbank financial institutions (NBFIs) are underwater on the value of assets vs debt, particularly firms that have been raising debt and equity to support the sagging market for crypto tokens and derivatives.

Michelle Bowman, vice chair for supervision at the Federal Reserve, shared concerns about declines in housing activity paired with higher inventories of homes for sale and falling housing prices, Inside Mortgage Finance reported in September. “I am concerned that, in the current environment, declines in house prices could accelerate, posing downside risks to housing valuations, construction and inflation,” she said. How about a sudden further drop in prices for stocks and/or crypto tokens, which seem to be correlated?

We agree with Bowman’s concerns about the potential for rapid declines in home prices and also worry that default rates will rise very quickly in the next year because of the accumulated number of delinquent households that have been hidden by forbearance since COVID. Notice that loanDepot (LDI) is still leading the pack for our Mortgage Surveillance Group, followed by Fannie Mae and Freddie Mac.

Mortgage Surveillance Group

Source: Yahoo Finance

We expect the shares of the GSEs to lose ground in the near term given last week’s announcement by Federal Housing Finance Agency Director Bill Pulte that the GSEs will not be released from conservatorship. After pumping the two stocks for months with the prospect of release from conservatorship, Pulte said Friday that the GSEs would stay under federal control for now, reinforcing their conservatorship status while exploring a limited public offering option.

The mortgage entities “will likely stay in conservatorship,” Pulte said at the housing conference ResiDay in New York City. "There will be very little to no interruption. If anything, it may actually make things safer and sounder.” It seems pretty clear that the earlier statements made by Pulte were false. Last month, Inside Mortgage Finance reported, Pulte had to backtrack on comments he made on a podcast in which he said, “I’d be very bullish on these companies, frankly.”

Making knowingly false claims about a public stock offering is a serious violation of federal securities laws, primarily the Securities Act of 1933 and the Securities Exchange Act of 1934. This activity falls under the umbrella of securities fraud and can lead to severe civil and criminal penalties, including substantial fines and imprisonment. It's unlikely that anybody in the Trump White House really cares if Bill Pulte or his staff make false statements about the penny stocks of Fannie Mae and Freddie Mac. But it is worth noting that there are just three years remaining in Trump II. The shareholders of the GSEs are already attacking Pulte on social media for his apparent duplicity.

Are loanDepot & United Wholesale Mortgage UnderWater?

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