By Julie Haviv
NEW YORK, March 19 (Reuters) - Fannie Mae, the largest provider of funding for U.S. home mortgages, late on Thursday laid out the pace of its program to buy delinquent loans, starting with a purchase of 220,000 loans in March.
Fannie Mae said in a statement it would 'increase significantly its purchases of loans from single-family MBS trusts that are delinquent' by four or more consecutive monthly payments.
The buyouts, over four months, will proceed along agency MBS coupon lines, with higher coupons getting bought out earlier.
This added clarity may allay recent concerns among agency MBS market participants, who had been unsure which collateral Fannie Mae would repurchase in March and which ones would be bought later.
Fannie Mae and its smaller sibling, Freddie Mac , first announced their respective delinquent buyout plans in February. Freddie Mac said in February it would repurchase all 120-plus days-delinquent loans from agency MBS pools in one fell swoop, which triggered a massive spike in prepayment speeds, a key determinant of MBS valuations.
Fannie Mae buyouts, by contrast, were surrounded with significant uncertainty over their scale, timing, and sequence.
Fannie Mae earlier this month changed the policy for buying out loans in the Home Affordable Modification Program trials. Starting in March, servicers will be allowed to repurchase such loans, even if not all the documentation has been submitted.
The buyouts can create losses on agency MBS by refunding, or prepaying, principal at face value, instead of at higher prices, where they currently trade.
Prepayment speeds are used by investors to determine the value of mortgage bonds. If prepayment speeds rise or fall too quickly, returns on mortgage securities are hurt.
Prepayment speeds can be voluntary or involuntary. Voluntary prepayments are linked to home loan refinancing activity. Those that are involuntary, or delinquency-related, are expected to increase substantially in 2010, largely because of loan buyouts and loan modifications Fannie and Freddie.
Clarification on the loan buyouts directly impacted agency MBS 'dollar rolls' on Friday.
In dollar rolls, a holder of agency MBS delivers securities to a dealer and agrees to repurchase similar securities on a future date at a predetermined price. The dealer is not obligated to return the identical securities.
The Fannie Mae 6.50 percent April/May roll was 23/32 higher in late morning trade, a senior MBS trader said. The 6.50 percent buyouts are finished in March.
The Fannie Mae 6.00 percent April/May roll was 6/32 lower in late morning trade, he said. The 6.00 percent buyouts are finished in April, but it is not as significant a re-pricing as in the 6.50 percent coupon.
Dollar rolls have a direct impact on agency MBS valuations. When rolls trade poorly, agency MBSs tend to cheapen. One reason agency MBSs have performed so well over the past year has been because of strength in dollar rolls.
The yield premium on Fannie Mae MBS paying 4.50 percent interest compared with the 10-year Treasury note widened to 0.608 percentage point on Friday from 0.599 point the previous day, according to Reuters data.
(Editing by Padraic Cassidy) Keywords: USA FANNIE/BUYOUTS (Reuters Messaging:julie.haviv.reuters.com@reuters.net; email: julie.haviv@thomsonreuters.com; +1-646 223 -6153) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, March 19 (Reuters) - Fannie Mae, the largest provider of funding for U.S. home mortgages, late on Thursday laid out the pace of its program to buy delinquent loans, starting with a purchase of 220,000 loans in March.
Fannie Mae said in a statement it would 'increase significantly its purchases of loans from single-family MBS trusts that are delinquent' by four or more consecutive monthly payments.
The buyouts, over four months, will proceed along agency MBS coupon lines, with higher coupons getting bought out earlier.
This added clarity may allay recent concerns among agency MBS market participants, who had been unsure which collateral Fannie Mae would repurchase in March and which ones would be bought later.
Fannie Mae and its smaller sibling, Freddie Mac , first announced their respective delinquent buyout plans in February. Freddie Mac said in February it would repurchase all 120-plus days-delinquent loans from agency MBS pools in one fell swoop, which triggered a massive spike in prepayment speeds, a key determinant of MBS valuations.
Fannie Mae buyouts, by contrast, were surrounded with significant uncertainty over their scale, timing, and sequence.
Fannie Mae earlier this month changed the policy for buying out loans in the Home Affordable Modification Program trials. Starting in March, servicers will be allowed to repurchase such loans, even if not all the documentation has been submitted.
The buyouts can create losses on agency MBS by refunding, or prepaying, principal at face value, instead of at higher prices, where they currently trade.
Prepayment speeds are used by investors to determine the value of mortgage bonds. If prepayment speeds rise or fall too quickly, returns on mortgage securities are hurt.
Prepayment speeds can be voluntary or involuntary. Voluntary prepayments are linked to home loan refinancing activity. Those that are involuntary, or delinquency-related, are expected to increase substantially in 2010, largely because of loan buyouts and loan modifications Fannie and Freddie.
Clarification on the loan buyouts directly impacted agency MBS 'dollar rolls' on Friday.
In dollar rolls, a holder of agency MBS delivers securities to a dealer and agrees to repurchase similar securities on a future date at a predetermined price. The dealer is not obligated to return the identical securities.
The Fannie Mae 6.50 percent April/May roll was 23/32 higher in late morning trade, a senior MBS trader said. The 6.50 percent buyouts are finished in March.
The Fannie Mae 6.00 percent April/May roll was 6/32 lower in late morning trade, he said. The 6.00 percent buyouts are finished in April, but it is not as significant a re-pricing as in the 6.50 percent coupon.
Dollar rolls have a direct impact on agency MBS valuations. When rolls trade poorly, agency MBSs tend to cheapen. One reason agency MBSs have performed so well over the past year has been because of strength in dollar rolls.
The yield premium on Fannie Mae MBS paying 4.50 percent interest compared with the 10-year Treasury note widened to 0.608 percentage point on Friday from 0.599 point the previous day, according to Reuters data.
(Editing by Padraic Cassidy) Keywords: USA FANNIE/BUYOUTS (Reuters Messaging:julie.haviv.reuters.com@reuters.net; email: julie.haviv@thomsonreuters.com; +1-646 223 -6153) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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