Opinion: Who will buy the mortgages? | BusinessMediaguide.Com

Today, as Laurie points out, the GSEs are restricted in what they can buy. Per the 4th amendment to the PSPA (preferred stock purchase agreement), essentially the governing document for the two companies in conservatorship, it is stated clearly. Historically, the GSEs could make up for the short in demand if needed.

For example, if the current short was absorbed by GSE purchases, the spread between 30-year mortgages and and the 10-year treasury would likely collapse to it’s more normalized level, likely bringing mortgage rates down about 100bps +/-.

But the PSPA

The question many in capital markets have been asking since the GSEs were put into conservatorship is this: Without Fannie, Freddie, or the Fed, who will buy the agency MBS? Today we are seeing this play out with a shortage of MBS buyers to the tune of about $2 billion in demand per day.

Supply and demand — when demand is low, MBS prices will drop at sale and the corresponding yields will rise.

Late last year, Laurie Goodman, the famed MBS expert and a leader at the Urban Institute in Washington, penned an article in Barrons details ⇒

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