Mortgage Securitization Rate Hits New High in 2009

The percentage of new mortgages rolled into securities climbed to a new record high in the first half of 2009 as the mortgage market’s dependence on government-related programs continued to grow. According to a new analysis by Inside MBS & ABS, a hefty 82 percent of the estimated $995 billion in mortgages originated in the first six months of the year ended up in mortgage-backed securities. This was up from 79 percent in 2008 and was the highest level ever recorded by Inside MBS & ABS.

While much of the blame for the recent mortgage crisis has been leveled at mortgage securitization, the plain fact is that most of the major government mortgage programs rely heavily on securitization. Some 93 percent of FHA and VA mortgages and 89 percent of Fannie Mae and Freddie Mac eligible mortgages were securitized in the first half.

Fed MBS Purchases Exceed Agency Production in First Half

Despite a significant slowdown in June, Federal Reserve purchases of agency MBS eclipsed the $1 trillion mark in the first six months of 2009. Significantly, that amounted to 108 percent of actual agency MBS issuance by Ginnie Mae, Fannie Mae and Freddie Mac during the first half. If there ever was any question about how committed the U.S. Government is to driving down mortgage rates, the whopping $1.001 trillion in agency MBS purchases answers with a resounding “very committed.” Not only did the Fed buy the equivalent of all the $928 billion in agency MBS produced in the first half, but the agency also bought an additional $73 billion worth.

2Q09 Mortgage Originations Expected to Top $700 Billion

With one week still left, the second quarter of 2009 is shaping up to be a very big period for mortgage volume. According to new numbers compiled by Inside Mortgage Finance, some $548.1 billion in agency MBS already has been produced this quarter–making 2Q09 the third largest quarter ever. This near-record agency MBS issuance is expected to translate into more than $700 billion in mortgage originations for the second quarter. This would mark a 57 percent jump from the first quarter when $445 billion in loans were made, according to Inside Mortgage Finance.

While the second quarter is expected to end with a bang in terms of total mortgage activity, less clear is what will happen in the third quarter as the impact of higher mortgage rates starts to be felt. The Mortgage Bankers Association this week reduced its mortgage origination forecast for the full year to $2.1 trillion. That would mean that third and fourth quarter mortgage originations will average only about $500 billion per quarter in the second half.

Fannie and Freddie Dramatically Step Up MBS Purchases

Responding to increased federal pressure to help lower mortgage rates, both Fannie Mae and Freddie Mac significantly increased their purchase of their own mortgage securities last month. According to new numbers released by both government-sponsored enterprises, combined MBS holdings jumped $47.5 billion in November. That was up from an already high $42.5 billion in October.

Together, Fannie and Freddie now hold $1.6 trillion in their retained portfolios. Significantly, the GSEs’ increased MBS purchases come at a time when their own issuance of mortgage securities has been declining. Freddie’s purchase of about $42 billion in its own MBS last month exceeded its new production by nearly three fold. That means that Freddie is not only buying up all
the available supply of its new MBS but also a sizeable amount from bank and other investors’ portfolios.

Mortgage Rates Tumble on Fed Pledge to Buy Agency MBS

Long-term mortgage rates tumbled yesterday on news that the Federal Reserve planned to invest as much as half a trillion dollars in the agency MBS market in the coming months. According to numbers compiled by Inside Mortgage Finance, the Fed’s pledged investment would amount to 60 percent or more of all Ginnie Mae, Fannie Mae and Freddie Mac expected MBS production over the next year.

The government’s move is aimed at significantly improving pricing on agency MBS, which currently are funding close to 90 percent of all mortgages being made in the U.S. If the government’s efforts succeed, the mortgage market could see prime 30-year fixed rate loans near 5 percent by early next year.