The percentage of private mortgage insurance sales tied to the GSEs’ low-downpayment programs dropped from 20% in July to 12% in December, with industry players pinning the fall on lower income thresholds.
The key factor for TBA investors is prepayment speeds. A quick scan of the FHFA data show that the conditional prepayment rates for UMBS issued by Fannie and those issued by Freddie have remained comparable since the launch of the single security in June.
The novelty of prepayment as a primary risk factor is one of the charms MBS have for foreign investors, particularly sophisticated institutional investors. That’s because it has a relatively low correlation factor with other assets.