The federal government is marshaling all its resources to help nonbanks with MBS obligations stay liquid. For now, the effort appears to be working but new brush fires are popping up.
The secondary market for orphaned non-QM assets is thriving. This includes both whole loans and even securitizations. The biggest question for buyers: Has a floor been established yet?
Mortgage-related real estate investment trusts, including Redwood, have been hit hard by a wave of margin calls due to drastic declines in the value of their MBS. Redwood said it has met its margin calls so far.
AG Mortgage Investment Trust filed a lawsuit to stop Royal Bank of Canada from selling commercial MBS the company is a counterparty to. The bank for now has decided to postpone the auction.
On the same day that the Federal Reserve bought its first $1 billion in agency multifamily MBS, it purchased more than $41 billion in agency single-family MBS.
During the 2008 financial crisis, investors in non-agency MBS sought repurchases from issuers, citing faulty underwriting and disclosures. A similar surge in putbacks could be on the way for the auto ABS market.
Delinquencies in commercial MBS loans are likely to jump due to the economic impact arising from the COVID-19 outbreak, with hotels and malls likely to be the early casualties.
The coronavirus economic assistance package is signed, sealed and delivered but concerns remain over the ability of nonbanks to pay MBS holders in the event delinquencies spike over the short term.
A resumption in quantitative easing — at a pace that dwarfs asset purchases during the financial crisis — is just one of several Fed actions to keep credit markets functioning through the coronavirus crisis.
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