The FHFA’s capital requirements include relatively harsh treatment of credit-risk transfer transactions from Fannie and Freddie but that view could change under the Biden administration.
As borrowers in prime non-agency MBS transition out of forbearance plans, investors in the deals could experience reduced cashflows due to interest shortfalls.
With a relatively high share of borrowers missing mortgage payments, investors in non-agency MBS are seeing reduced cash flows and, in some cases, losses. Though mortgage performance is improving, the outlook for investors remains uncertain.
Sterling Bank has offered to buy back all non-QMs after uncovering various problems with its lending program. Between May and July, the bank repurchased loans from five MBS, taking a loss.
Issuance in the MBS and ABS markets seems to be humming along with tighter spreads. But industry participants warn investors should beware of over-optimism.
Foreign investors, mutual funds and pension accounts all gave way to the massive $550 billion increase in the Federal Reserve's MBS holdings. But depository institution portfolios managed to keep growing. (Includes three data charts.)
Demand for non-QM MBS has returned to pre-pandemic levels even though the deals include a significant amount of loans in forbearance and fewer protections for investors.
Issuance of expanded-credit MBS was expected to remain suppressed after volatility in March halted activity. After a strong second quarter, industry analysts revised their projections.
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