The government-sponsored enterprises (GSEs) will buy $200bn of serious delinquent loans out of their mortgage-backed securities (MBS) pools over the next several months, according to a report from the Royal Bank of Scotland (RBS). The first $42bn wave of buyouts came March 15, and the remainder should come in April, May and June, according to researchers based at the bank’s operations in the United States. One of the GSEs, Fannie Mae (FNM), said in a press statement earlier in March that it expects to continue purchasing delinquent loans in subsequent months until the seriously delinquent loan population is “substantially reduced.” Analysts at Barclays Capital remarked that Fannie will likely begin “buying out loans on a coupon-by-coupon basis, for all products including 10/20s, ARMs, starting with the highest coupons in the April report, and then proceeding to lower coupons in subsequent reports.” With the large stream of cash coming back to investors over the coming months, reinvestment decisions will be become a top priority. RBS reported seeing high demand for very short duration securities, such as floaters, money-market and short collateralized mortgage securities (CMOs). But the market has become very cloudy, as players are scurrying to figure out the unknown effects, timing and size of the Fed exit from MBS, more buyouts and outcomes from the Home Affordable Modification Program (HAMP), according to RBS. Today, the New York Federal Reserve Bank bought another $10bn of agency MBS for the week as the $1.25trn program reaches 99% complete and should end by April. Write to Jon Prior.

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