"The GSE buyout programs have created a period of sharply higher portfolio runoff, which has contributed to higher premium amortization and lower portfolio yields," said company CEO Andrew F. Jacobs.
Jacobs noted that the GSEs have "largely concluded" their buyout programs with June purchases to be reflected in the July portfolio runoff numbers.
Fannie and Freddie have been purchasing delinquent mortgages out of MBS pools, which allows them to save money by not passing on revenue to the end investor. While this saves Fannie and Freddie millions of dollars in MBS payouts, it reduces the yield on the underlying security and hurts cash flow to investors such as Capstead.
The publicly traded Capstead is a large buyer of mortgage bonds backed by ARMs. The company saw the yield on its interest earning assets fall to 2.47% in the second quarter, down from 2.99% in the first, a decline of 52 basis points.
The company purchased $926 million of MBS during the quarter, more than offsetting $857 million of principal runoff. Its portfolio grew to $7.7 billion at June 30, a slight increase from March 31.
