Issuance of non-agency securities increased 81.3% in the second quarter of 2021. Volume was boosted by the spike in deliveries of GSE-eligible mortgages following regulatory changes in the agency market. (Includes data chart.)
The non-agency market has emerged as an alternative, albeit at a higher cost, for lenders to deliver GSE-eligible mortgages backed by investment properties and second homes. However, some lenders are concerned about the adverse impact GSE restrictions could have.
Fannie and Freddie have provided lenders with some flexibilities on construction-related loans. Also, they will pause acquisitions of refinances of mortgages with high loan-to-value ratios.
Securitization of mortgages for investment properties increased at Fannie and Freddie in the first quarter even as overall GSE business declined. Lenders appear to have rushed to deliver the loans before new restrictions took effect. (Includes data chart.)
As much as $20 billion of GSE-eligible mortgages could go into non-agency MBS annually due to new restrictions on GSE acquisitions of mortgages for investment properties and second homes.
In the absence of the GSE patch, lenders have fewer incentives to rely on GSE eligibility when determining a loan’s QM status. Still, the final destination of a loan will depend on pricing in the non-agency market.
A January agreement between the Treasury and FHFA, which places limits on mortgage acquisitions by the GSEs, could send some business to the non-agency market. The limits apply to high-risk mortgages as well as loans for investment properties and second homes. (Includes data chart.)