GSE Buyout Plans Disrupts Some TBA Trades

The delivery of certain coupons within the "TBA" mortgage-backed securities market were disrupted (or failed) in the wake of massive loan buyout plans unveiled by Fannie Mae and Freddie Mac last week. These settlements are expected to be resolved soon, according to Credit Suisse researchers. The "fails," which represent situations in which a promised amount of securities cannot be delivered by the settlement date, have been seen in to-be-announced 5% and 5.5% MBS coupons. These higher premium coupons are prioritized in the buyout plans. Credit Suisse researchers said in a report accompanying an investor call that they expect fails should move toward resolution as investors deliver more of the needed pools going forward. They see the buyouts of delinquent loans as ultimately a positive for the agency MBS market as they remove prepayment uncertainty, among other things. That uncertainty is removed almost entirely in Freddie Mac securities due to its "one [month] and done" buyout plan. Fannie's multimonth buyout plan presents opportunities for short-term trades in those securities, said Mahesh Swaminathan, director and head of residential mortgage-backed securities for CS.