"Wells Fargo analysts similarly estimated that if the GSEs are able to execute at least $100 billion in purchases, the move could tighten the MBS basis by 20 basis points (bps), all else being equal. A tighter basis would indirectly lower primary mortgage rates, potentially thawing turnover activity in lower coupons and driving supply expectations higher, they wrote. By Friday morning, Paradise said the yield on the 5.0 MBS coupon had improved by about 50 bps. That move could translate into mortgage rate improvements of roughly 7 to 10 bps compared with earlier in the week."
"Historically, Fannie and Freddie have used their retained portfolios to support housing affordability, acting as marginal buyers of MBS and subsidizing guarantee fees. Prior to being placed into conservatorship in 2008, the GSEs expanded their portfolios aggressively including exposure to risky mortgages before the Federal Reserve stepped in as the dominant buyer through quantitative easing following the financial crisis. The Fed, however, is moving in the opposite direction."
GSE purchases of at least $100 billion could tighten the MBS basis by about 20 basis points, lowering primary mortgage rates and encouraging turnover in lower coupons while increasing expected supply. A roughly 50-basis-point improvement in the 5.0 MBS coupon can translate to mortgage-rate improvements of approximately 7–10 basis points. Agency MBS spreads versus Treasurys currently sit near 89 basis points, close to the long-term industry average, with potential additional tightening toward pre-Covid levels. Fannie Mae and Freddie Mac historically used retained portfolios to support affordability and expanded holdings before 2008 conservatorship. The Federal Reserve is reducing its MBS footprint by reinvesting into Treasurys. A $200 billion GSE purchase program would roughly offset the Fed’s annual MBS runoff and could make GSE buying less price sensitive, implying tighter spreads and lower mortgage rates.
Read at www.housingwire.com
Unable to calculate read time
Collection
[
|
...
]