FLASH UPDATE: Initial MBS impact on Rep. Watt's decision to delay "g-fee" hike is muted

On Friday Dec 20^th  Rep. Mel Watt, the incoming Director of FHFA, announced his intention to delay the implementation of "g-fee" hikes and changes to the risk-based pricing plan announced on Dec 9^th.  This promises to be the first volley in an ongoing course change for the FHFA between outgoing Director DeMarco and Watt. 

Approximately one week after the announcement by Watt, we see premium coupon (4.5s, 5.0s) MBS underperforming their hedges by about a quarter point - but pretty much in line with underperformance for lower coupon MBS as well.  Because these fee changes were not slotted to take effect until the end of 1Q14, we hadn’t expected to see much of an immediate impact on pricing deriving from this announcement.

Longer term, the importance of this decision is that it confirms the upcoming policy direction for the FHFA will clearly be steered toward supporting the availability of credit to homeowners versus accelerating the exit of Fannie and Freddie from the mortgage market.  All else equal - which is rarely the case - this will delay the return of private capital into the mortgage market and support the primacy of agency-backed mortgages in the mortgage market today.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global