Inflation is creating lending hurdles related to consumer spending and rates this year, as could another move the Fed's eyeing; but lenders will have some coping mechanisms, industry leaders said Tuesday.

One thing to watch out for, besides a potential short-term rate hike due to inflation, is incoming Federal Reserve Chairman Kevin Warsh's interest in possibly shrinking the Fed's balance sheet, which could put additional upward pressure on long-term financing costs.

These issues and the impact of market volatility on mortgage assets are expected to complicate much of 2026. But top executives at the Mortgage Bankers Association's secondary and capital markets conference said they see ways to cope with them until a more favorable market forecast for 2027 arrives.

Other public policies aimed at boosting home loans (such government-sponsored enterprise mortgage-backed securities purchases, bank capital reform and a pending housing bill) could provide what panelists described as incremental support for the residential market.

Also, while lower rates look unlikely at this point, a surprising event that changes things is always possible.

Meanwhile, providing a greater variety of mortgages aimed at addressing growing hurdles to buying a home also could help offset some of the financial strains of homebuying for consumers, said Michael Lau, managing director of Bayview Asset Management.

"You need more product innovation," he said.

Lau confirmed that his company, which is the corporate parent of other mortgage-related entities such as Lakeview and Guild Mortgage, is moving ahead with the pilot of a lease-related product that provides hundreds of dollars of savings per month compared with a traditional mortgage. It will start in Colorado with business partners that include Estately, Lau said.

Increased adjustable-rate loan production also will help address some of the market's challenges this year, said Michael Patterson, senior executive vice president and chief operating officer at Freedom Mortgage.

"We just have to make sure we don't get too creative," Patterson said.

He said Freedom generally prefers to stick to funding government-related mortgages sold to Fannie Mae and Freddie Mac, or into the securitization market Ginnie Mae guarantees. Lau noted that the first-lien mortgage involved in the lease-related product is Fannie-eligible. Patterson acknowledged that Freedom has considered opportunities in the nonagency market with evaluation around whether and how associated risks could be managed. He doesn't view current measures aimed at helping borrowers afford homes, such as builder interest-rate buydown, as necessarily being excessive.

"We just, as an industry, have to make sure we don't go too far," he said.

Panelists generally agreed any product expansion would have to be prudent and avoid the excessively loose underwriting many say contributed to a past housing crash.

Jay Plum, executive vice president at Fifth Third Bank, views the current environment as one where "it's OK to say no" to borrowers. 

Credit concerns appear limited to lower tiers but the test of that will be what June mortgage performance looks like, he said. Delinquencies typically recede around tax season due to refunds but get back to more normalized levels around that time.

"I think we'll know if we've got more of a problem coming," he said.

While there has been a pickup in Federal Housing Administration delinquencies from the transition away from pandemic leniency in the government-insured market, it is a trend that mortgage companies should not "overreact to as an industry," Patterson said.