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Agency mortgage-backed securities gross issuance significantly rose in November, which was driven primarily by an increase in Fannie Mae’s products production, which was likely to due to the proposed increase of guarantee-fees on mortgages sources tell HousingWire.
"There might be several reasons for higher issuance in November," agency MBS strategist Sarah Hu of Royal Bank of Scotland ($10.14 0.2%) said. "Some borrowers jumped to refinance their mortgages before the December G-fee hike."
Agency MBS gross issuance rose 45% month-over-month from $138 billion in October to more than $200 billion in November. Fannie Mae products were up 76%, from $60 billion to $105 billion, according to agency MBS strategists Hu and Ashley Gam of RBS.
Overall net issuance also rose from negative $15 billion to $56 billion, which is the greatest addition of supply to the market since August 2009.
The Federal Housing Finance Agency is targeting five states in its plan to adjust the guarantee fees Fannie Mae and Freddie Mac charge for single-family mortgages. It hopes to recover a portion of the “exceptionally high costs” the GSEs incur in cases of mortgage default in those states.
This is tripled from the previously raised guarantee fees charged to lenders by an average 10 basis points in order encourage private capital to fund the market.
Mortgage rates hit new record lows in September following the Federal Reserve’s announcement of its ended quantities easing program, which also fueled purchase and refinancing activity, Hu said.
Capital Economics reported that the Fed will likely expand the third installment of QE3, which will ultimately replace the expiring Operation Twist.
The Fed could opt either to buy $40 billion of longer-term Treasury securities per month to match its MBS purchases or $45 billion to compensate for the purchases under Operation Twist. Another option is to double its purchases of MBS to $80 billion per month, according to Capital Economics.
The continued increase in streamlined refinancing activity for Home Affordable Refinance Program for various lenders such as Bank of America, which was noted in a previous RBS report.
The available pool of eligible mortgages that qualify for the HARP refinancing continued to narrow among the big lenders.
Higher Fannie Mae issuance may also be correlated with both GSEs securities price differences, Hu said.
"Since Freddie securities have been traded behind FN securities, lenders may prefer to deliver more loans into Fannie securities, which increased their issuance volumes," she stated.
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