Ever since the Fed started its rate-hiking cycle, the spread between interest rates on loans in agency MBS and the 10-year Treasury rate has been elevated. Prepayment risk is to blame and there’s no easy fix.
Margin calls from repo lenders are always a risk when collateral values decline, which is why MBS holders, like REITs, are under watch. The yield on the 10-year Treasury is at a 16-year high — that’s the bad news. The good news: This may be the peak of the cycle.
JPMorgan Chase and Goldman Sachs accounted for much of the big increase in agency MBS held in bank holding company trading accounts during the second quarter. But several other companies recorded significant increases as well. (Includes two data charts.)
Although REITs’ total MBS holdings were down in the second quarter, the industry recorded a modest increase in its agency MBS investment portfolio. (Includes two data charts.)
FINRA plans to implement margin requirements for agency MBS transactions in May. The requirements, which have been delayed for years, will apply to broker-dealers.
MBS holdings at Fannie and Freddie are a shadow of what they used to be. Then again, being in a conservatorship that just celebrated its quinceanera will do that to you.
Bank of America reported a $16 billion decline in its residential MBS portfolio, while a number of other banks shed more than $1 billion in the second quarter. Chase increased its holdings, but not but as much as the First Republic acquisition might have suggested. (Includes two data charts.)
The New York-based financial firm admitted to providing false pricing information to residential MBS clients between 2009 and 2013. It also agreed to cooperate with investigations into former employees.
If the proposal is implemented, some mortgage originations that have gone into bank portfolios would likely go into MBS instead. The impact on bank investment in MBS and ABS looks to be much more modest.
A pending proposal led by the Federal Reserve could see big banks facing higher capital requirements on their holdings of securities classified as available-for-sale.
The creation of a U.S. sovereign wealth fund could grease the skids for an end to the conservatorships of Fannie Mae and Freddie Mac.
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