The Fed established the Bank Term Funding Program to help alleviate pressure faced by depository institutions holding MBS and other assets with large unrealized losses. Tracking usage of the BTFP in real-time was limited.
The Fed’s shift to rate cuts is helping to increase demand for agency MBS. And other activity at the federal level has prompted a reduction in volatility, providing stability for investors.
The delinquency rate on loans in Ginnie Mae MBS increased at a much faster pace than that on loans in GSE MBS, with the total delinquency rate for FHA mortgages hitting 10.90% at the end of September.
Trade groups representing smaller lenders called on the Trump administration to prompt the GSEs to increase their holdings of MBS as a way to reduce mortgage rates.
The prepayment rate on agency MBS hit a high for the year in September and that’s expected to be topped again in October. Analysts note that their prepayment models are off due to changes in lenders’ practices.
Fed still working toward a Treasury-only balance sheet; BlackRock, Hoplon units partner to bring in new ABS issuers; ABS East set for record attendance; CREFC adjusts plans for DC symposium.
In the early years of Fannie/Freddie conservatorship, investors were seeking an explicit guarantee of GSE MBS as part of any reform effort. More recently, they have shown an acceptance for maintaining an implicit guarantee.
The volume of adjustable-rate mortgages flowing into agency mortgage-backed securities jumped in the second quarter of 2025 and has remained elevated. Large nonbank lenders are driving the increase. (Includes data table.)
With the Fed widely expected to reduce the federal funds rate next week, demand for agency MBS is rising. Banks are also projected to add to their holdings, though their buying might be somewhat delayed.