A shot of lower mortgage rates would help a sagging agency MBS market as July saw declines in both purchase-mortgage and refinance activity. ARMs are having a moment. (Includes two data tables.)
President Trump said he plans to maintain an implicit guarantee for the GSEs if they’re removed from conservatorship. Prominent agency MBS investors expressed relief about the administration’s stance on GSE reform even though they don’t expect near-term action.
Investors saw the value of their agency MBS holdings drop in early April due to volatility tied to trade policies. Many markets recovered from the volatility by the end of June, but the agency MBS market lagged.
While issuance of specified pools with high GSE mission-density scores declined in the second quarter, there was a significant increase in pools with FICO scores below 700. (Includes data table.)
Federal Reserve Governor Christopher Waller said the central bank’s balance sheet hasn’t grown as much as people think, but that MBS sales might be needed to balance the duration of assets and liabilities.
It may take time for MBS investors to fully understand how use of the new credit score for underwriting loans sold to the GSEs impacts pricing and hedge strategies.
If there’s any good news on the agency MBS front it’s that new issuance volume increased from the first quarter to the second. Then again, it was driven by seasonality.
Will the One Big Beautiful Bill Act cause federal deficits to grow and rates to spike? The simple answer seems to be yes, but so far the yield on the 10-year note hasn’t moved much.
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