GSEs Can Accommodate Buyouts Unless...

Fannie Mae and Freddie Mac likely will not need to sell agency MBS to make room in their capped portfolios for massive distressed loan buyouts, although it still could happen, according to a new report from Barclays Capital. If rates fall off sharply, reducing runoff at Fannie Mae, the GSE theoretically might be forced to sell off a significant portion of its MBS holdings, according to Barclays. However, the report says this outcome is unlikely because federal officials would not allow Fannie to sell MBS into a market with high rates and risk pushing rates even higher. As for prepayment speeds, Barclays said it expects Freddie Mac's Gold securities will increase 3- to 5-fold in March with 15-year securities proving most immune to the increase. Fannie Mae speeds after March are expected to increase by a constant prepayment rate of 15-35 and stay there through the June report.