On Tuesday, The Urban Institute’s [1] Housing Finance Policy Center released its October 2017 edition of At A Glance. The reference guide focuses on mortgage and housing market data and includes updated figures on housing credit availability, home prices, the latest GSE risk-sharing transactions, and a quarterly feature on GSE loan composition, repurchase rates, defaults, and loss severity.
For the month of September, three mortgage market developments were in focus: HUD Secretary Carson’s comments on the enforcements under the False Claims Act (FCA), the Fed’s agency wind down of mortgage-backed securities (MBS) portfolio, and the continued innovation within the GSE credit risk transfer.
Based on remarks from Carson, HUD was “addressing the problem [of lenders paying extremely high fines after additional FHA enforcements] and claimed to be “committed to getting [overall tightness of credit at the lower end of the spectrum] solved.” The Urban Institute believes this is noteworthy because ending the use of FCA for small origination mistakes can give depository lenders more confidence to go back to FHA lending, particularly lenders who are low- and moderate-income.
The Fed’s portfolio reduction of agency MBS was another development noted by the Urban Institute. The Fed decided to initiate the process of reducing its holdings of agency MBS in October 2017, but prior to this announcement, the Fed said it would only start reductions later in the year. The Fed’s decision has provided certainty for MBS investors and has caused spreads to tighten, with the current coupon Ginnie Mae MBS and the average 5- and 10-year treasury notes narrowing by 7 basis points, and the spread between current coupon Fannie Mae MBS and the average treasury note narrowing by 4 basis points in the week after the announcement.
Finally, Freddie Mac announced it would be expanding its STACR credit risk transfer program to create a larger investor base for CRT securities. The change allows new securities called STACR-Securitized Participation Interests to be eligible assets for real estate investment trusts (REIT). These would only be invested in real estate and real estate-backed assets and are considered tax-friendly for foreign investors. Urban Institute believes REITs will increase overall demand and facilitate better pricing and liquidity for CRT securities.
For the full summary, click here. [2]