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Who Will Pick up Fed’s MBS Buying Slack?

The Federal Reserve has completed its
latest round of Quantitative Easing, the government sponsored enterprises
(GSEs) Freddie Mac and Fannie Mae are under orders to continue shrinking their
investment portfolios and significant constraints exist to keep private
investors from purchasing agency mortgage-backed securities (MBS).  So who, the Mortgage Bankers Association
(MBA) asks, is going to pick up the slack?

A white paper written by MBA’s vice president
and senior economist Michael Fratantoni, lays out the conundrum facing the MBS
market. 
Fratantoni says both policy
makers and the housing industry have a common interest in bringing private
capital into the mortgage markets but the key question is how and in what form
that private capital can best reenter the system.  MBA has advocated for private capital to have
a larger role in covering credit risk within the government guaranteed,
conforming portion of the market but we need to consider how to draw it to the
interest-rate risk of the conforming market and how to reengage it for lending
outside of the government guaranteed system.

…(read more)

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