GSE-eligible mortgages for investment properties are reshaping the prime non-agency MBS market. The loans have somewhat looser underwriting standards than what’s typically seen on prime jumbos. (Includes three data charts.)

While caps on GSE acquisitions of loans for investment properties were suspended mid-September, non-agency issuers continue to package the loans in their MBS. Three firms entered the sector during October.

Prime jumbos and loans eligible for sale to the GSEs helped propel the non-agency MBS market to a post-2010 record in the third quarter of 2021. Issuance of expanded-credit MBS lagged. (Includes data chart.)

Issuers are still stocking non-agency MBS with GSE-eligible mortgages for investment properties. Lenders and issuers are considering their options following a suspension of limitations placed on the GSEs.

The industry was hoping the FHFA and the Treasury Department would roll back the restriction placed on the GSEs’ use of the qualified mortgage patch.

Close to $15 billion of GSE-eligible mortgages have gone into non-agency MBS this year, including many loans for investment properties and second homes. That’s expected to slow due to a removal of restrictions on the GSEs.

Some of the Trump-era restrictions placed on the GSEs have been put on hold for at least a year. That includes a cap on acquisitions of mortgages for investment properties.

The blueprint would reverse capital requirements set in December, which offered few incentives for the GSEs to complete credit-risk transfer transactions.

Thanks to restrictions placed on the GSEs, investment-property mortgages are flowing into non-agency MBS. Some lenders are issuing deals on their own while others are turning to aggregators like Credit Suisse.

Industry consultants are cautioning companies to take steps to ensure their fair housing compliance teams are ready to defend an expected uptick in enforcement actions.