BarCap: Policy Changes Unlikely To Turn GSEs Into Significant MBS Sellers

The government-sponsored enterprises' (GSEs) announced changes in delinquency buyout policy are unlikely to force Fannie Mae and Freddie Mac to sell agency mortgage-backed securities (MBS) to make room in their portfolios, Barclays Capital analysts wrote in a Feb. 12 report.

BarCap expects Freddie Mac to buy out at least $72 billion of MBS and Fannie Mae to buy out at least $127 billion of MBS.

Of Freddie's $72 billion of purchases, BarCap assumes that about $15 billion is already part of the company's existing agency MBS holdings (bringing the portfolio increase to $57 billion). If Freddie continues its buyouts throughout the year, as BarCap expects, the purchases could total $60 billion (which, when combined with the $57 billion, amounts to $117 billion).

BarCap notes three offsets: First, Freddie's existing portfolio is about $55 billion below its cap; second, about $100 billion in runoff is expected this year; and third, the portfolio will likely decline by about $30 billion as loans move from foreclosure to real estate owned, by about $30 billion. The $117 billion increase is thus offset by approximately a $185 billion cushion.

"Consequently, Freddie is unlikely to sell MBS," BarCap analysts wrote.

Fannie's situation appears less certain, though BarCap still has little expectation that the company will sell MBS. BarCap assumes that about $30 billion of Fannie's expected $127 billion MBS buyouts is currently part of its existing agency MBS holdings. The analysts also expect Fannie's 120+ day bucket to grow by about $120 billion over this year. Combined, these two factors would expand the portfolio by about $217 billion.

Just as with Freddie, Fannie's portfolio increases will be offset by its current below-cap status ($37 billion), expected runoff ($100 billion) and transfer of loans from foreclosure to REO ($60 billion).

"So, the $217 billion increase is offset by a cushion of around $197 billion," BarCap says. "This is very close to the $217 billion we estimate in portfolio growth. Even if our numbers on both sides are exactly correct, FNMA is still unlikely to be a big seller of MBS in our base case."

SOURCE: Barclays Capital


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