Retained mortgage portfolios at Fannie Mae and Freddie Mac were relatively unchanged in the first quarter as increases in MBS holdings offset declines in whole loans. The portfolios still generate earnings, but guarantee business is the biggest source of income.
A huge downturn in issuance of agency multifamily MBS was the key factor in a 23% decline in commercial mortgage securitization during the first quarter of 2019. Non-agency CMBS production saw a gentler 6% downturn.
New primary mortgage insurance activity was down in the first quarter of 2019, but FHA and VA managed to expand their share of the market thanks to surging refinance business. Private MIs started the year slightly ahead of the pace in early 2018.
Mortgages with low credit scores and higher loan-to-value ratios accounted for a larger share of Fannie/Freddie purchase business in the first quarter. But the industry is hardly in a race to the bottom despite slumping volume and tight margins.
Many lenders still rely on the "natural hedge" that balances gains on the production side against losses on servicing, but timing is an issue. Retention may be the best hedge of all.