Rate-lock volumes slowed in December such that on Friday capital markets advisory firm Mortgage Capital Trading described the development as “sharper than expected” in its monthly indices report.

Lock volumes had been described by MCT as in a “holding pattern” over previous months, declining by 4% from October to November after falling just 1.3% from September to October, as the market adjusted to disruptions induced by the government shutdown.

“I think we’re set up for a better winter than we’ve seen in several years,” said Andrew Rhodes, head of trading at MCT, in an indices report from early November, despite the Federal Reserve’s then-cautious stance on a December rate cut that ultimately arrived on Dec. 10.

Overall lock volumes then declined by nearly 19% in December, with extra-seasonal declines of more than 19% in locks across both purchase and refinance segments.

In Friday’s report, MCT attributed the pullback to borrowers navigating “lingering uncertainty” from the government shutdown and a mortgage-rate environment “that has yet to meaningfully improve.”

“When you combine typical winter seasonality with the spillover effects of the longest government shutdown in history, it makes sense that people became more conservative about making big financial decisions, including buying a home,” said Rhodes.

Lingering shutdown impacts

A rate lock is an agreement between a borrower and a lender that the interest rate on a loan will remain fixed during the loan processing period. When a borrower locks a rate, it ripples across the mortgage web, signaling that a loan application has advanced into closable territory.

MCT directly addressed data degradation that has resulted from disruptions in government data collection and reporting due to the government shutdown, with direct impacts on business conditions.

“Changes at the Bureau of Labor Statistics, along with the government shutdown, have pushed more economists to look at private job numbers as a gauge of the job market,” the company said, for example.

On an annual basis, lock volumes remained higher than last December, with total locks up nearly 30%. Purchase volumes were 7% higher in December year over year, while rate-and-term refinances were 257% higher and cash-out refinances were up 46%.

That signals normalization continues to work through the market, says Rhodes.

“Back in October, I was feeling more optimistic about where rates were headed,” he said. “Now it seems like mortgage rates have settled into the low sixes, and it doesn’t feel like we’re going to get into the fives, which is really where you’d see production start to pick up.”

Without rates moving a few benches lower, however, and “market expectations now shifting toward potential easing in the second quarter of 2026,” Rhodes expects lock activity to improve gradually at its currently seasonally and structurally slower pace.

GSEs purchasing MBS

Mortgage rates did receive a helpful hand this week, however, when the Federal Housing Finance Agency, which regulates government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, confirmed that President Donald Trump directed the pair to purchase $200 billion of their own mortgage-backed securities (MBS).

The purchases are a strategy to narrow mortgage spreads, which helps lenders stretch their liquidity through offers of lower mortgage rates to borrowers, translating to a demand-side nudge for as long as purchases last.

The mortgage industry has broadly supported turning on GSE liquidity to stimulate loan activity. But Fannie and Freddie only have a combined portfolio cap of $450 billion imposed by their conservatorship agreements.

A recent analysis by the Urban Institute’s Laurie Goodman and Jim Parrott suggests that neither the GSEs nor the Federal Reserve are well positioned to play an MBS-market stabilizer role, however, which the Federal Reserve only stepped into incidentally by way of the 2008 financial crisis.

“Until we know which path it will be for the GSEs — profit-seeking enterprises or mission-focused utilities — the risk of giving them this market-stabilizing role simply outweighs the cost of forgoing a market stabilizer altogether,” the pair wrote, noting the Trump administration’s active efforts to reprivatize Fannie and Freddie.