The offerings in the non-agency MBS market range from deals backed by prime jumbo mortgages to investment-property loans that were eligible for sale to the GSEs to non-QMs.

While Fannie and Freddie refi business fell sharply in the second quarter, there were significant increases in loans with low credit scores. Meanwhile, the fastest growing sectors of the GSE purchase market had higher LTV ratios. (Includes two data charts.)

The end of the QM patch — thanks to a maneuver by the FHFA and Treasury — could help the non-agency market compete with the GSEs.

Issuance of non-agency securities increased 81.3% in the second quarter of 2021. Volume was boosted by the spike in deliveries of GSE-eligible mortgages following regulatory changes in the agency market. (Includes data chart.)

Trump-era GSE policies that helped boost activity in the non-agency market could be reversed as Biden appointees take charge at the FHFA.

Issuance of non-agency MBS with GSE-eligible loans is booming, largely due to restrictions on certain purchases by the GSEs.

The non-agency market has emerged as an alternative, albeit at a higher cost, for lenders to deliver GSE-eligible mortgages backed by investment properties and second homes. However, some lenders are concerned about the adverse impact GSE restrictions could have.

Fannie and Freddie have provided lenders with some flexibilities on construction-related loans. Also, they will pause acquisitions of refinances of mortgages with high loan-to-value ratios.

Securitization of mortgages for investment properties increased at Fannie and Freddie in the first quarter even as overall GSE business declined. Lenders appear to have rushed to deliver the loans before new restrictions took effect. (Includes data chart.)

As much as $20 billion of GSE-eligible mortgages could go into non-agency MBS annually due to new restrictions on GSE acquisitions of mortgages for investment properties and second homes.