Fannie Details Timeline for Buying Bad Loans out of MBS

Fannie Mae on Friday clarified its timeline for its massive buyouts of seriously delinquent loans that reside in agency MBS, confirming that 220,000 notes will be bought in April alone. The April buyouts (for loans 120 days or more past due) affect MBS with coupons of 6.5% or higher. In May lower yielding coupons (6% yield) will be targeted followed by 5.5s and 5s. This is largely in line with expectations that Fannie would buy out the loans by coupon, starting with the highest yielding securities. Fannie's clarification was designed to calm the market but could prove jarring to investors pursuing MBS-related swap strategies that had been based on the relative uncertainty of Fannie buyouts (in relation to Freddie Mac buyouts). In the wake of the clarification, market participants should short these strategies, according to a Barclays report.