The Federal Open Market Committee this week voted to scale back the central bank’s purchases of agency MBS again, dropping the monthly growth target to $25 billion, but the deceleration is barely keeping even with the rapid slowdown in new MBS issuance. At its December meeting, the FOMC decided to drop its MBS purchases to a pace that would add $35 billion per month, and lowered that by another $5 billion at its January meeting. The program began in late 2012 at $40 billion a month. The central bank will continue to reinvest principal and interest payments on its holdings in the agency MBS market. The most recent available data show...[Includes two data charts]

New Federal Reserve Chair Janet Yellen said this week that the U.S. central bank’s bond purchase program will likely end this fall as the Fed Open Market Committee announced, as expected, a further pullback in its agency MBS purchases. Beginning in April, the FOMC said it will add to its agency MBS holdings at a pace of $25 billion per month rather than $30 billion per month. If the slowdown continues at its current pace, the Fed will stop growing its MBS holdings late this summer. The FOMC also updated...

The securitized mortgage market appears to be destined to be dominated by mortgages that meet the Consumer Financial Protection Bureau’s qualified-mortgage standards. Criteria from the rating services gives favorable treatment to QMs, while Fannie Mae and Freddie Mac are avoiding non-QMs altogether. Fitch Ratings released criteria this week for how it will rate non-agency mortgages in light of the CFPB’s ability-to-repay rule and QM standards, rounding out a number of updates from the rating services about how they will handle the issue. The ATR rule took effect for loans with an application date of Jan. 10 or later. So far, no loans subject to the ATR rule have appeared in a jumbo MBS. Issuers have...

The agreement among Republicans, Democrats and the White House for the need to act and the heightened urgency to pass legislation before a potential shift in power after the mid-term elections could determine the outlook for housing reform legislation in 2014, according to analysts. Fannie Mae and Freddie Mac reform efforts in Congress and investor lawsuits are helping shape the housing debate this year, and the recently issued Johnson-Crapo draft legislation is the bill to watch going forward, said Bloomberg Industries analysts this week. The profitability of the two government-sponsored enterprises in 2013 not only fueled...

A continued decline in GSE refinances, in concert with faltering purchase activity midway through the first quarter, helped contribute to an overall drop in the volume of single-family mortgages securitized by Fannie Mae and Freddie Mac in February. Fannie and Freddie issued $44.6 billion in single-family mortgage-backed securities in February, a 5.1 percent decline from January and a steeper 62.0 percent drop for the first two months of 2014 compared to the same period in the previous year.

If Fannie Mae and Freddie Mac are eventually liquidated, the federal government could reap between $170 billion and $234 billion in net proceeds, according to a new audit of the firms, but that doesn’t mean the junior preferred stockholders in the two will see a dime of that money. The newly released Johnson-Crapo mortgage finance reform bill provides no relief to investors in the junior preferred or owners of common stock in the two government-sponsored enterprises, leaving all liquidation proceeds to the U.S. Treasury, which owns the senior preferred shares. Over the past 18 months, several high-profile private-equity firms – Fairholme Capital, Pershing Square and Perry Capital, to name a few – have invested...

A Morgan Stanley managing director, Brian Wornow, recently departed as head of the firm’s trading desk, but he is hardly alone among Wall Street traders who are weighing their options amid rapidly declining MBS production. According to Wall Street executives and lenders that feed their trading desks, there are other concerns about lower-than-expected bonuses this spring and an unwillingness on the part of some established firms to take risks in the mortgage market, particularly when it comes to new jumbo mortgages and other non-agency vehicles. Sources contend...

Publicly traded real estate investment trusts reported a 13.5 percent decline in their holdings of residential MBS during the fourth quarter, according to a new Inside MBS & ABS analysis. The industry reported $264.8 billion of residential MBS at the end of 2013, a 26.4 percent drop from the fourth quarter of 2012. The five largest REIT MBS investors all reported double-digit drops during the final three months of 2013, while the mid-range companies generally had smaller declines and three smaller firms actually grew their portfolios. At the top of the table, Annaly Capital Management reported...[Includes one data chart]

The U.S. Supreme Court has added two more lawsuits to its growing list of securities cases by agreeing to take up an IndyMac MBS suit. In Public Employees’ Retirement System of Mississippi v. IndyMac MBS Inc. et al, SCOTUS has agreed to consider whether the filing of a class-action lawsuit tolls the three-year statute of repose under the Securities Act of 1933 or whether the statute is an absolute bar that cannot be suspended. Like a statute of limitations, a statute of repose cuts off...

Members of the Treasury Markets Practice Group are supportive of the Financial Industry Regulatory Authority’s recent proposal to establish margin requirements for transactions in the “to be announced” market, seeing them as compatible with what the TMPG itself is trying to accomplish with the same products. According to the minutes of a recent meeting, TMPG members noted that FINRA’s proposed rule amendments would be binding across FINRA’s membership, which would further the objectives of the TMPG’s agency MBS margining recommendation and encourage wider adoption of margining practices over time. “While recognizing that the TMPG’s margining best practices go...