Report: Nonagency Bid List Could Be Start of Fannie, Freddie Divestiture

A relatively large $1-billion-plus bid list of nonagency residential mortgage-backed securities in the market this week may have been the first move in a regulatory plan for Fannie Mae and Freddie Mac to divest some of its portfolio assets, according to an Interactive Data report.

According to the report, “Most of the securities in question were block-sized and many comprise the entire tranche, something the GSEs typically purchased when they were growing their respective balance sheets.”

The bid list was said by the company to consist primarily of adjustable-rate prime or alternative-A credit loans originated in or prior to 2005.

“Initial indications from the Street were that one dealer purchased nearly three-quarters of the list and that execution was thought to be strong,” Interactive Data said in the report.

The FINRA Interactive Data Structured Aggregates report shows the bid list “appeared to have a modest impact on total nonagency CMO trading volume relative to recent daily averages,” with the latter pegged at $77 million per day compared to $623 million Thursday.

“While yesterday's total trade volume was not extraordinarily high, there was a noticeable increase in net dealer positioning,” Interactive Data said in its report.

According to a recent Credit Suisse report, Freddie Mac recently said it would begin sales of its nonagency RMBS holdings in May, citing an improvement in bond prices, and “plans on selling about $1 billion a month, with potential sales reaching a total of $5 billion by the end of 2013.”

Freddie Mac spokesman Tom Fitzgerald confirmed the report and that the $1 billion bid list circulated this week was one of the sales.

Both reports indicated that this potentially raises the concern about how additional nonagency supply could affect the market, but downplayed it, noting that a selling party would be mindful of this and adjust the sales if necessary to avoid it.

Credit Suisse also noted that “$1 billion a month pales in comparison to other large-scale sales” such as Maiden Lane II.

Among the Federal Housing Finance Agency’s conservatorship “scorecard” strategic plan performance goals for 2013 is one calling for the reduction “of the Dec. 31, 2012 retained portfolio balance (exclusive of agency securities) by selling 5% of assets.”

An FHFA spokeswoman did not have an immediate comment.