Archive for the 'Mortgage securities' Category
May 2nd, 2009, 3:00 am by Mathew Padilla
Housing sales are up, but the market will fully recover only when investors start buying mortgage securities again, some experts say. So what will get them buying?
Investors are holding back because home prices are falling and no one knows how far loan delinquencies will climb, experts say. Government, by lowering interest rates and offering buyers tax incentives, is doing everything it can to support home prices.
As for uncertainty about delinquency, data crunchers TransUnion LLC and First American CoreLogic say they got it covered. TransUnion is one of the big three credit reporting agencies and CoreLogic tracks loan data as part of title insurance giant Santa Ana-based First American Corp.
Investors have relied on rating agencies — Standard & Poor’s, Moody’s and Fitch – to assess default and other risks. But the agencies gave some rosy ratings they later had to take back on securities backed by loans that are non-conforming, meaning not backed by Fannie Mae or Freddie Mac.
 Joe Mellman Joe Mellman, a vice president with TransUnion, and Dan Berman, a senior vice president with CoreLogic, said in an interview that they are jointly offering investors data and analysis that helps assess default risk. Dubbed TransUnion Consumer Risk Indicators, the service is also offered to buyers of whole loans (not securities).
Q. So is this new service necessary because the rating agencies can’t be trusted?
Mellman: “The fact that rating agencies recently haven’t made the right calls certainly enhances the need. But this information goes beyond that. Independent of how rating agencies perform there is still a need for this. I think the key point is that it adds additional insight above and beyond what the rating agencies have provided.”
Q. How does it work?
Mellman: “Historically, in the non-agency mortgage securities market there hasn’t been as much concern about default. There weren’t defaults when housing prices were going up. Obviously, that’s changed over the last couple of years with the housing collapse. Now there is a driving need for consumer default and prepayment behavior information.”
“At TransUnion, one of the core competencies is tracking consumer behavior. At First American CoreLogic it is the detailed loan-level information on securitized loans. We figured out a way to marry that to TransUnion’s consumer details.
 Dan Berman Berman: “Among our core competencies is the loan level data on virtually all no-agency mortgage-backed securities, roughly 96% of the non-agency market. We get files through securitization and update those monthly.”
Q. How does this differ from what is currently used in the industry?
Mellman: “Up until recently, looking at specific consumers or borrowers of loans in each securitization has not been possible. The information hasn’t been used and for good reason: there wasn’t a need as long as default risk wasn’t high.”
Berman: “We now have the ability to join TransUnion data to that of loan level data to get the borrower’s perspective. Stakeholders in securities can get updated views.”
Q. Are you targeting investors in mortgage-backed securities?
Mellman: “That’s a fair statement. Investment banks, hedge funds, pension funds — anyone with a financial stake in non-agency mortgage securities (is our target).”
Q. Is this service both for when a security is issued and later, say if an investor wants to be distressed assets from a bank?
Berman: “It precedes securitization and is post securitization. It can tell you if people are paying or not paying, if home prices are going up or down, if people have taken out additional loans on the property. Up until this solution, the client wasn’t able to know post origination, post securitization what the overall risk encumbrances are. A loan can be 80% LTV at origination, but that can change based on additional loans the borrower may take out. Also, the property value is going to change.”
Mellman: “A consumer may look safe at origination, but that can change over time. This (service) offers a broad sweep of information, generally covering most of the information traditionally available on a credit report. We have narrowed it down to the set most helpful to financial investors. For example, consumer credit utilization – how much credit a consumer has available — is a good predictor of risk. Also, the timeliness of payments, including on credit cards, is a good indicator. The consumer credit data encompasses most debt; it’s not just focused on a specific property. The investor can see if I have eight mortgages outstanding.”
Q. How will data be presented to investors?
Mellman: “It’s a large data set. We can be very flexible with different security types, but usually we do an electronic data feed. Data is detailed but anonymous. We don’t identify borrowers.”
Q. Is everything geared toward default risk?
Mellman: “That is a big focus, but it can help model and anticipate prepayment risk.”
Q, What does it cost?
Mellman: “We are privately held. We don’t provide that information to the market.”
Q. What info do you have on adjustable-rate mortgages?
Mellman: “TransUnion has access to First American CoreLogic’s adjustable-rate information, such as when the interest rate is going to reset and how much it will reset to.”
Berman: “That’s particularly useful for a portfolio of junior liens. Junior lien holders can see whether or not there will be payment shock on reset, including the risk before and after the resetting event.”
Q. Investors have relied on rating agencies. Why do you think they will take this extra step and use your service?
Mellman: “Two reasons: one we alluded to earlier. The rating agencies go it wrong on a lot of these securitizations. There is going to be a period of time, when some trust needs to be built back into that. But even more importantly, independent of that, sophisticated investor are always looking for an information edge. We have incremental insight into how a security is going to perform that directly translates into making more money for them. The rest of the market doesn’t have that clear a picture, and they can translate that into dollars.”
Q. What companies/investors have signed up for it, if any?
(Mellman and Berman both declined to name clients, citing privacy agreements.)
Q. Are you hoping some investors in the Obama administration’s public-private investment partnerships (PPIP) use your service?
Mellman: “Absolutely. Anyone who has an interest in establishing a more accurate price and knowing the true risk of a security (is a potential customer).”
Berman: “We are hopeful the folks participating will leverage this information, creating a little more – or a lot more — transparency in the market. Hopefully, that will lead to greater liquidity in the market.”
Posted in: Meltdown • Mortgage securities • Q&A • industry | 2 Comments »
April 21st, 2009, 6:00 pm by Mathew Padilla
The Federal Reserve has no particular exit strategy in mind for the $1.25 trillion in net mortgage-backed securities it plans to buy this year, said former Fed governor Randall Kroszner, according to National Mortgage News. (See my previous post on the Fed’s ballooning balance sheet HERE.)
Here’s more from NMN:
Speaking at the Mortgage Bankers Association’s National Secondary Market Conference, Mr. Kroszner said the central bank will “do whatever it takes” to keep rates in check until the MBS market returns to some semblance of normalcy. For the most part, the central bank is now the secondary market for mortgage-backed securities issued by Fannie Mae and Freddie Mac, having purchased more than $300 billion worth of the bonds in the first quarter. But the MBA is worried that when the Fed reaches its goal, its exit from the market will cause mortgage rates to shoot upward. Mr. Kroszner, who spent three years at the central bank before returning to the University of Chicago in January, said, “The real challenge is to thread the needle. Whether the Fed will purchase more or less will depend on the facts and circumstances at the time.” If the central bank is satisfied by 2010 that the market is coming back, it will reduce it purchases, said Mr. Kroszner, who was a member of the President’s Council of Economic Advisors from 2001 to 2003, and “mortgage rates should rise at a normal pace.”
In other news…
Posted in: Fed • Mortgage securities | 3 Comments »
April 11th, 2009, 3:00 am by Mathew Padilla
Recently I asked Linda Lowell, formerly a managing director at Greenwich Capital and current head of consulting firm OffStreet Research LLC in Ossining, New York, her thoughts on the Federal Reserve’s plan to buy up to $750 billion more in securities backed by mortgages with guarantees from Fannie Mae or Freddie Mac. Here’s her response:
Whether by design or by accident, the Fed now is trying to plug the hole in MBS demand left by the short-sighted and partisan-politics-driven takeover of Fannie and Freddie. The portfolios represented unacceptable systemic risk to the intellectual foes of FN/FRE and, to bank supporters, unfair funding advantage — and it follows, too sharp an edge before subprime & Alt-A in the loan market. But to all other sectors of mortgage demand they were market ballast, operating efficiently to keep a floor on pricing.
Critics of Fannie and Freddie will argue all kinds of things to the contrary, but Fannie and Freddie were very sophisticated asset/liability managers and value buyers, who bought MBS and loans for portfolio when they were cheap — in flight to quality panics and strong interest rate rallies. This established that floor on pricing which helped buffer performance for other investors and kept the mortgage rate from widening too sharply from other interest rates in a rally.
As you know, this mechanism collapsed starting last spring. They started having difficulty funding as cheaply, capital constraints on portfolios began to bother MBS investors — in brief, the foreign, hedge fund and other buyers who were next buyers on the margin after FN/FRE started to balk. Many have gone as FN/FRE clearly can not use their funding ability and portfolios as they had in the past. It finally dawned on the authors of every unintended consequence you never wanted to imagine that someone had to replace the demand for mortgages. Enter the Fed.
They are doing their best, through very skilled managers to realize value and buy up enough new production to keep mortgage rates close to Treasuries. I haven’t looked lately at how they are doing, but they have achieved new historic lows in mortgage rates to best buyers. But bear in mind, they can’t remove all the spread between mortgage rates and Treasury rates. Investors must be compensated for prepayment risk and all its siblings and cousins. Also, if Treasury rates rise with Treasury supply, then mortgage rates will rise.
If they have a number (ideal mortgage rate) in mind, I don’t know it. I don’t recall anyone saying out loud what the goal was since (former Treasury Secretary) Paulson left. It’s not the number that matters so much either, it’s the psychological effect of historic low and the pure facts of affordability. The objective is to get more disposable income into refinancing households — or at least, foreclosure protection — and to attract new buyers into the housing market. There are lots of frictions and hurdles on the way to that objective that the Fed cannot control.
Posted in: Bailout Buzz • Meltdown • Mortgage rates • Mortgage securities • Q&A | 3 Comments »
April 9th, 2009, 3:00 am by Mathew Padilla
Dean Baker, co-director of the Center for Economic and Policy Research in Washington, writes in a recent column:
If $3 trillion in mortgage debt was refinanced (just under 30 percent of outstanding debt) with an average savings of 1.0 percentage point, then this would save homeowners $30 billion a year in mortgage payments. That is certainly helpful to the economy, but it is just 0.2 percent of GDP. Furthermore, a substantial portion of this benefit will be lost when people sell their home (often in the next few years), since they will have to absorb refinancing costs that average 0.6 to 0.8 percent of the loan.
The Federal Reserve, in cutting the federal funds rate and buying mortgage-backed securities, clearly wants people to refinance and lower their debt payments, hopefully spending that savings. I think Baker is right that the boost to consumer spending will be limited.
The Fed’s other goal is to help the housing market find a bottom sooner. It wants to stop the wealth destruction, or at least, it wants people to feel wealthier and more secure.
Home buying has increased from very low levels. But eventually rates must rise to combat inflation and that will put downward pressure on home prices.
However, some economists see deflation as the bigger worry right now, and inflation could be years away.
In other news…
Posted in: Bailout Buzz • Mortgage rates • Mortgage securities | 2 Comments »
April 8th, 2009, 5:30 pm by Mathew Padilla
The Federal Reserve today released minutes from its last meeting, sharing these thoughts on its efforts to buy securities backed by mortgages (bold type added):
The Federal Reserve’s programs to buy direct debt obligations of the federal housing agencies and agency-guaranteed MBS were on track to reach their initial targets of $100 billion and $500 billion, respectively, by the end of June. Participants agreed that the asset purchase programs were helping to reduce mortgage interest rates and improve market functioning, thereby providing support to economic activity. Some participants stated a preference for communicating the Committee’s intention regarding such purchases in terms of the growth rate of Federal Reserve holdings rather than a dollar target for total purchases. However, others noted that the pace of MBS issuance was likely to be especially brisk over the next few months, in part because of the Administration’s new Making Home Affordable program, and observed that it could be advantageous to be able to front-load purchases to accommodate the pattern of mortgage refinancing. Participants also discussed the relative merits of increasing the Federal Reserve’s purchases of agency MBS versus initiating purchases of longer-term Treasury securities. Some participants remarked that experience suggested that purchases of Treasury securities would have effects across a variety of long-term debt markets and should ease financial conditions generally while minimizing the Federal Reserve’s influence on the allocation of credit. However, purchases of agency securities could have a more direct effect on mortgage rates, thus providing greater benefits to the housing sector, and on private borrowing rates more generally. Also, some participants were concerned that Federal Reserve purchases of longer-term Treasury securities might be seen as an indication that the Federal Reserve was responding to a fiscal objective rather than its statutory mandate, thus reducing the Federal Reserve’s credibility regarding long-run price stability. Most participants, however, saw this risk as low so long as the Federal Reserve was clear about the importance of its long-term price stability objective and demonstrated a commitment to take the necessary steps in the future to achieve its objectives.
…
In the discussion of monetary policy for the intermeeting period, Committee members agreed that substantial additional purchases of longer-term assets eligible for open market operations would be appropriate. Such purchases would provide further monetary stimulus to help address the very weak economic outlook and reduce the risk that inflation could persist for a time below rates that best foster longer-term economic growth and price stability. One member preferred to focus additional purchases on longer-term Treasury securities, whereas another member preferred to focus on agency MBS. However, both could support expanded purchases across a range of assets, and several members noted that working across a range of assets and instruments was appropriate when the effects of any one tactic were uncertain. Members agreed that the monetary base was likely to grow significantly as a consequence of additional asset purchases; one, in particular, stressed that sustained increases in the monetary base were important to ensure that policy was consistently expansionary. Members expressed a range of views as to the preferred size of the increase in purchases. Several members felt that the significant deterioration in the economic outlook merited a very substantial increase in purchases of longer-term assets. In contrast, the potential for a large increase over time in the size of the balance sheet from the TALF program was seen as supporting a more modest, though still substantial, increase in asset purchases. Ultimately, members agreed to undertake additional purchases of agency MBS of up to $750 billion and of agency debt of up to $100 billion, and they also agreed to purchase up to $300 billion of longer-term Treasury securities. The Committee believed that purchases of these amounts would help to promote a return to economic growth and price stability. The period for conducting the agency debt and MBS purchases was extended from the next three months to the next nine months; members agreed to allow the Desk flexibility within this horizon to respond to market conditions. Treasury purchases were to be conducted over the next six months. Members also noted the recent launch of the TALF, and they agreed to include in the Committee’s statement an indication that the range of assets accepted as eligible collateral for the TALF was likely to be expanded. Committee members decided to keep the target range for the federal funds rate at 0 to 1/4 percent and to communicate to the public the Committee’s view that the federal funds rate was likely to remain exceptionally low for an extended period.
In other news…
Posted in: Bailout Buzz • Fed • Mortgage rates • Mortgage securities | 3 Comments »
April 7th, 2009, 7:50 am by Mathew Padilla
The New York Times took a closer look at how the Federal Deposit Insurance Corp. is going to fund investor purchases of bad loans and related assets — a key part of Treasury Secretary Timothy Geithner’s bank rescue plan:
The F.D.I.C. is insuring the program, called the Public-Private Investment Program, by using a special provision in its charter that allows it to take extraordinary steps when an “emergency determination by secretary of the Treasury” is made to mitigate “systemic risk.”
Fair enough, but the Times also reports that the provision in question limits the FDIC’s ability to borrow, guarantee or take on obligations of more than $30 billion.
As the Times points out, the FDIC will insure up to 85% of the debt, provided by Treasury, that private investors will use — together with a little of their own money — to buy assets that have plummeted in value since the housing downturn began. Treasury says the program could eventually buy $1 trillion in assets.
One could see all this as a way for the Obama administration to avoid asking Congress for more bailout funds, reports the Times’ Dealbook.
So how does the FDIC insure up to $1 trillion in assets? The Times says by focusing on “contingent liabilities” — or what it might actually lose. How much does it expect to lose? Nothing!
“We project no losses,” Sheila Bair, the chairwoman, told the Times. “Our accountants have signed off on no net losses.”
The “no-losses” policy — kinda reminds me of how Wall Street used to view subprime — is justified because the FDIC plans to carefully vet every loan made and will receive fees and collateral in exchange, writes the Times’ Andrew Ross Sorkin, who is clearly skeptical. I am wondering: Isn’t the collateral the toxic assets???’
But if there are nominal losses, then the FDIC can assess the financial industry a fee to get its money back, Sorkin is told. He says that would put more pressure on weakened banks. Hey, those that got TARP money could use it to pay the fee.
Sorkin rightly points out that if the FDIC’s logic is flawed and it is crushed by the losses, then taxpayers will have to bailout the FDIC.
The latest banking/lending stories …
Posted in: Bailout Buzz • FDIC • Meltdown • Mortgage securities | 2 Comments »
March 28th, 2009, 3:00 am by John Gittelsohn
 Jon Daurio, chairman of Orange-based Kondaur Capital Corp., has up to $1 billion to invest in “scratch-and-dent” mortgages — home loans that are under water or delinquent or foreclosed. Despite all that capital, Daurio says he has no plans to be one of the investors in Treasury Secretary Tim Geithner’s scheme to create a government-private market for the troubled mortgages and mortgage-backed securities that have become toxic assets on bank ledgers. The plan is “woefully inadequate,” because it distorts the free market, said Daurio, who worked for subprime lenders Long Beach Mortgage Corp. and Encore Capital Corp. before founding Kondaur in 2007. Some excerpts from an interview:
Q. Why don’t you like the Geithner plan?
A. They’re offering something like 11-to-1 leverage of government-to-private money as a way of getting private capital into the market. But it’s interesting that everyone agrees that being over-leveraged got us into this problem and now they’re saying here’s leverage to get us out. They’re talking out of both sides of their mouth.
Q. Isn’t the idea to get someone to invest in these toxic assets that no one wants so banks can unload them?
A. The problem isn’t that the market is frozen for mortgage-backed securities. The problem is the banks don’t want to sell them for what they’re worth. These banks are like the walking dead. And instead of trying to keep them alive by propping up the market, the government should let them die.
Q. What do you think about the government’s ideas of prices?
A. The government says they want to pay something like 72 cents on the dollar. I think that’s far too high. We’re being told that the real value is in the 30s.
Q. Is it possible you don’t like this plan because it could hurt your business by driving up the cost of mortgages?
A. It absolutely could hurt and I’m not a disinterested party. But I think the magnitude of the market is so great — and they’re only talking about $1 trillion — that I’ll still have business. I’d be shocked if it takes care of enough loans to really move the marketplace.
Q. Have you heard of anyone interested in participating in the Geithner plan?
A. I haven’t seen anybody stepping up, because none of us have any faith in the government. It’s definitely not attractive enough for Kondaur. I’m also afraid that the government will change the terms of the deal, like they’re doing with bankruptcies and allowing judges to cram down the cost of mortgages. Look at what they’re doing with AIG, talking about a 90% tax on the bonuses. What’s to prevent the government from changing the deals on this?
Q. What about PIMCO, the bond trading company in Newport Beach? They’ve been saying it’s a good idea.
A. It may work for them. They’d be buying mortgage-backed securities, which are basically bonds. We are in a different market. We buy whole loans, not securitized mortgages. That takes a lot more labor, because we do due diligence on every mortgage. Bonds are a totally different business.
Previous stories on Kondaur …
Ex-subprime exec works flip side of the market
What type of mortgage jobs are opening?
O.C. mortgage company hiring 200
Other bailout stories …
Posted in: Bad debt • Bailout Buzz • Meltdown • Mortgage securities • Obama • Pimco • Uncategorized • Daurio • Geithner • Kondaur | 11 Comments »
March 18th, 2009, 3:46 pm by Mathew Padilla
Rates in Orange County dipped today on 30-year fixed-rate mortgages that can be sold to Fannie Mae or Freddie Mac, said Jeff Lazerson, head of online brokerage Mortgage Grader in Laguna Niguel.
He said buyers with good credit can get 4.625 percent with a one-point fee, down from about 4.750 percent yesterday. And a borrower can get 4.250 percent on a 15-year loan.
Those rates are for loans up to the old conforming limit of $417,000.
Earlier today the Federal Reserve said it plans to spend up to $750 billion more buying securities backed by loans that have been touched by Fannie or Freddie. And it will buy up to $300 billion in U.S. Treasury bonds.
Fixed mortgage rates are indirectly associated with yields on mid-term Treasuries. For example, this afternoon the yield on a 10-year Treasury dropped to about 2.5 percent from 3 percent yesterday.
The latest banking/lending stories …
Posted in: Mortgage rates • Mortgage securities | 8 Comments »
March 5th, 2009, 2:39 pm by Mathew Padilla
Bloomberg reports:
The Federal Reserve bought a net $30.1 billion of Fannie Mae, Freddie Mac and Ginnie Mae mortgage bonds in the latest week under its program aimed at lowering home-loan rates, using tools other than purchases for the first time.
The Fed entered contracts to buy $59 billion of the securities and sell $28.9 billion, according to a posting today on the New York Fed’s Web site. The purchases were the largest so far by either gross or net amount. The biggest portion from Feb. 26 through March 4 was $18.9 billion of 30-year debt with 4.5 percent coupons, the Fed said.
The U.S. central bank said that its sales, the first reported since the Fed two months ago began a program under which it may buy $500 billion of agency mortgage securities, “were associated with dollar rolls.” So-called dollar rolls, similar to repurchase agreements, create the equivalent of bond-secured financing for mortgage investors. The lower the cost of that borrowing for investors such as hedge funds, the lower the yields at which they may find mortgage-backed securities attractive.
Bloomberg explains dollar rolls as an investor seeking to borrow money entering into contracts to sell mortgage securities one month and then buy similar bonds the next month. A lender enters the opposite trades. Investors may also enter such trades for other reasons.
The Fed continues to nudge, or try to nudge, investors to buy mortgage securities, and thus lower mortgage rates.
In other news…
Posted in: Fed • Meltdown • Mortgage securities • MBS | 1 Comment »
February 5th, 2009, 3:52 pm by Mathew Padilla
Bloomberg reports mortgage purchaser Fannie Mae, which is under government control, will loosen rules for homeowners seeking to lower their loan payments by refinancing. Here’s more:
Fannie Mae will drop some credit-score requirements, reduce income-documentation standards and waive the need for appraisals in some cases, according to a notice yesterday to lenders posted on the Washington-based company’s Web site. The changes apply to loans that the company owns or guarantees.
The company, which accounts for more than 40 percent of the $12 trillion in U.S. residential mortgage debt, is seeking to break a “logjam” in refinancing and allow more homeowners to take advantage of near-record low interest rates, according to Brian Faith, a Fannie Mae spokesman. The increased flexibility for consumers isn’t large enough to significantly harm mortgage- bond investors and mortgage insurers, analysts said.
“This is not yet the no-appraisal refi wave that many have feared,” Matt Jozoff and Brian Ye, mortgage-bond analysts at New York-based JPMorgan Chase & Co., wrote in note to clients yesterday.
Fannie Mae’s appraisal change doesn’t mean borrowers with less than 20 percent home equity can forgo mortgage insurance, the analysts said. That’s because Fannie Mae will likely use automated models to check home values listed on applications before offering to waive appraisals, the analysts said.
The company’s DU Refi Plus program will start April 4.
Read the full story HERE.
And in other news…
Posted in: Fannie & Freddie • Mortgage rates • Mortgage securities | 11 Comments »
February 4th, 2009, 7:38 am by Mathew Padilla
Companies that issue securities backed by mortgages and other assets would have to take a 10% first loss position on future securities under draft legislation in Congress, reported National Mortgage News on Tuesday.
House Financial Services Committee chairman Barney Frank, D-Mass., said requiring a first loss hit for securitizers would stop Wall Street firms from providing liquidity on mortgages that borrowers cannot repay. … The committee chairman is working with the Senate Banking Committee and Treasury Department in drafting proposals that the Obama Administration will present at an international summit on systemic risk in April.
And in other news…
Posted in: Mortgage securities | 4 Comments »
January 5th, 2009, 12:39 pm by Jon Lansner
Associated Press reports …
The Federal Reserve Bank of New York said Monday it has begun purchasing mortgage-backed securities in an effort to bolster the battered housing market.
The program, initially announced Nov. 25, allows the Fed to spend $500 billion to buy mortgage-backed securities guaranteed by mortgage giants Fannie Mae and Freddie Mac and another $100 billion to directly purchase mortgages held by Fannie, Freddie and the Federal Home Loan Banks. The program is aimed at driving down the price of mortgages and making home loans more available.
“The actual action of starting to make purchases isn’t really affecting prices,” said Dan Green, loan officer with Mobium Mortgage in Cincinnati and author of TheMortgageReports.com. “It’s already been priced in.”
Green said when the program was announced, rates tumbled about one half of one percentage point and helped touch off a jump in mortgage refinancing activity.
The New York Fed is overseeing the program for the Federal Reserve. The New York Fed is working with four investment managers - BlackRock Inc., Goldman Sachs Asset Management, PIMCO and Wellington Management Co. - to purchase the securities. (MORE)
Other real estate news …
Posted in: Bailout Buzz • Meltdown • Mortgage securities • Pimco | 12 Comments »
December 30th, 2008, 2:38 pm by Mathew Padilla
Pimco, a Newport Beach-based investor in bonds, is one of four companies that will help the Federal Reserve buy up to $500 billion in securities backed by mortgages in an effort to ease the credit crunch. The others are BlackRock Inc., Goldman Sachs Asset Management, and Wellington Management Company.
The four companies will buy and hold mortgage securities made by government-owned lenders Fannie Mae, Freddie Mac, and Ginnie Mae. The goals of the program are to stabilize the market for home loans and lower mortgage rates.
Here are some key questions and answers from the Web site of the New York Fed, which is coordinating the effort:
Q. What is the investment strategy that will be employed?
A. Investment managers will employ a passive buy and hold investment strategy in accordance with investment guidelines prescribed by the Federal Reserve. Purchases will be guided by commonly referenced market indices. The agency MBS program will involve the outright purchase of up to $500 billion in agency MBS by the investment managers on behalf of the Federal Reserve by the end of the second quarter of 2009. The New York Fed will adjust the pace of its purchases based on input from the investment managers about market conditions and the impact of the program. The investment managers will be required to purchase securities frequently and to disclose the Federal Reserve as principal.
The investment strategy may involve the use of dollar rolls as a supplemental tool to smooth market supply and demand. A dollar roll is a transaction involving the sale of agency MBS for delivery in the current month and the simultaneous agreement to repurchase substantially similar (although not the same) securities on a specified future date.
Q. Does the agency MBS program expose the Federal Reserve to increased risk of losses?
A. Assets purchased under this program are fully guaranteed as to principal and interest by Fannie Mae, Freddie Mac, and Ginnie Mae, so the Federal Reserve’s exposure to the credit risk of the underlying mortgages is minimal. The market valuation of agency MBS can fluctuate over time based on the interest rate environment; however, the Federal Reserve’s exposure to interest rate risk is mitigated by the conservative, buy and hold investment strategy of the agency MBS purchase program.
Q. When will the purchases begin?
A. Purchases are expected to begin in early January, 2009.
Read all the details HERE.
And in other news…
Posted in: Bailout Buzz • Fannie & Freddie • Meltdown • Mortgage securities • Pimco | 9 Comments »
October 6th, 2008, 3:11 pm by Mathew Padilla
As the Dow Jones industrials plunged under 10,000, the first time it closed below that level since 2004, mortgage rates held steady today in Orange County, said Jeff Altman, a mortgage broker with WestCal Mortgage in Orange.
The best rate today on a 30-year fixed-rate loan up to the old conforming limit of $417,000 was 5.75% with a one-point fee, same as last week, Altman said. And rates on larger loans up to nearly $730,000 are still about 6% with a one-point fee, he said.
However, investors loaded up on mortgage-backed securities today as they fled bonds, and consumer rates may come down soon as a result, Altman said. When investors bid up the prices of mortgage securities, the yield drops on those securities, and that usually translates to lower consumer rates.
Rates could fall as much as half a percentage point if mortgage securities remain strong and stocks weak, he said.
And here is more meltdown coverage….
Posted in: Mortgage rates • Mortgage securities | 3 Comments »
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