What's a TBA, again? The TBA market facilitates the forward trading of MBS issued by the GSEs and Ginnie Mae, by creating parameters under which mortgage pools can be considered fungible and thus do not need to be explicitly known at the time a trade is initiated -- hence the name "to be announced." The TBA market is the most liquid, and consequently the most important, secondary market for mortgage loans.For some weeks now, industry insiders have estimated that jumbo conforming loans -- often referred to as "jumbo lites," depending on who you talk to -- would trade 1 1/2 to 2 points behind comparable TBAs. Applying comparable prepayment assumptions, industry sentiment translates nearly spot-on into Fannie's proffered 39 bp yield differential, according to sources that spoke with HW. Freddie Mac, which said in its own press statement that it had reached bulk delivery agreements with Wells Fargo, Chase, Citi, and WaMu, didn't disclose pricing details; sources suggested to HW that the pricing each lender received is comparable to what was put out there by Fannie Mae. "Purchasing conforming jumbo mortgages for our portfolio shows how we can bring new liquidity to markets other investors have all but abandoned and make full use of the new tools Congress gave us to help restore stability during the current housing crisis," said Freddie Mac chairman and CEO Richard Syron. "We initially expect conforming jumbo mortgages to have rates that are as much as half a percentage point below the jumbo market rate in many of these high cost markets." Freddie Mac said that it now expects to finance between $10 and $15 billion in new conforming jumbo mortgages in 2008; neither GSE has estimated the number of existing jumbos it will purchase under the retroactive purchase date established in the Economic Stimulus Act signed into law by President Bush on February 13. Today's announcement marks the first large-scale effort to jump-start the stalled jumbo mortgage market under the Economic Stimulus Act, which temporarily raised each GSE's conforming loan limit from $417,000 to as much as $729,750 through the end of 2008. Both Fannie Mae and Freddie Mac's purchases of conforming jumbo mortgages are restricted to 224 designated high-cost markets, where median home prices exceed Freddie Mac's $417,000 loan limit. Disclosure: The author held no positions in FNM or FRE when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
So-called jumbo conforming mortgages -- those mortgages above the $417,000 conforming limit that Congress has authorized each GSE to buy -- are not eligible to trade on a TBA basis.