Increased demand for non-agency MBS and pricing policies set by the government-sponsored enterprises are prompting some lenders to deliver high-quality GSE-eligible mortgages into non-agency MBS pools. If the trend persists, GSE MBS investors could face risks from adverse selection, according to industry analysts.
Housing-finance reform won’t happen in the near future and the government-sponsored enterprises are busy expanding their footprint instead of reducing it, according to lawmakers voicing concerns during a Senate Banking, Housing and Urban Affairs Committee hearing this week.
The collateralized loan obligation market is heading for some volatility, according to industry analysts. Issuance in the sector has been strong recently, but investors are preparing for short-term losses and fighting against certain provisions in deals.
A key Treasury Department official said regulatory reform could help rejuvenate the non-agency MBS market but offered little guidance on the future prospects for Fannie Mae and Freddie Mac.
Commercial banks and savings institutions held $113.75 billion of non-mortgage ABS in portfolio at the end of March, a scant 0.1 percent increase from the previous quarter, according to a new ranking and analysis by Inside MBS & ABS. [Includes two data charts.]
The Federal Housing Finance Agency went into more detail this week about the steps it is taking to make sure Fannie Mae and Freddie Mac prepayment rates are fairly congruent. And when the difference between the GSEs’ prepayment rates spreads beyond two percentage points, it must be reported to the FHFA’s Single Security Governance Committee for an explanation and remedial actions.
The Financial Industry Regulatory Authority has filed a proposed rule with the Securities and Exchange Commission to modify the definition of “agency debt security” to include credit-risk transfers for reporting and compliance purposes.
Credit characteristics continue to vary greatly between the two government-sponsored enterprises in the conventional market and Ginnie Mae. During the first quarter, the average credit score at Fannie Mae was 741.15, slightly below the average 744.73 at Freddie Mac. But the average score for Ginnie business was just 686.91. Purchase mortgages typically have higher credit scores – along with higher debt-to-income ratios – than refinance loans ... [Includes two data charts]
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