Agency MBS investors are looking forward to the Fed cutting interest rates twice this year. However, they warned that something unexpected could prevent the Fed from cutting rates in September.
Two large REIT investors in agency MBS incurred losses in the second quarter, due to interest rate volatility and an unaccommodating monetary policy stance. Still, they are optimistic about the future.
FHA purchase-mortgage volume increased 21.4% from the first to the second quarter, based on agency MBS activity. But GSE volume — both with and without private mortgage insurance — increased by more. (Includes three data tables.)
Primary MI lost market share in the agency market in the second quarter in both purchase mortgages and refis. Among loans in agency MBS with some form of MI, three states combined to account for slightly more than 30% of total volume in the second quarter. (Includes two data tables.)
When interest rates decline, the prepayment environment for agency MBS is likely to be much different compared with previous refinance booms, according to industry participants.
Money managers added to their holdings of agency MBS for the sixth consecutive quarter as of the first quarter of 2024. That might be the peak in their investments in agency MBS, according to industry analysts.
Philadelphia-based Republic Bank focused its mortgage production on jumbos with below-market rates. The bank also held agency MBS that lost value as interest rates increased.
Agency MBS investors saw spreads widen in April due to volatility surrounding the Fed. Still, banks are showing demand for MBS and the market is poised for a boost, according to industry participants.
Two former members of the Fed’s board called for bank regulators to adjust capital requirements for MBS holdings to better account for interest rate risk.