In a report released last week, Countrywide Securities discussed the potential for increased originator issuance in 5s. Analysts noted that in April, 30-year 5% coupon production surged, and was "noteworthy in its absolute size and the large proportion of 30-year conventional production it comprised," said analysts. The jump in 5s was due to conditions in the secondary market and specifically the Fannie 5.5/5.0 swap, which has done poorly over the past month, according to Countrywide analysts.

Countrywide theorized that the coupon swaps level has a direct relationship on issuance economics and which coupons offer the optimal execution for originators. As an example, analysts point out that if the Fannie 5.5/5.0 swap is trading at relatively wide levels, this suggests the higher coupon is trading well and so originators profit more by selling the higher coupon product, and vice versa when the swap is trading poorly. This calculation is meaningful for loans with rates that can be securitized into either coupon. In Countrywide's analysis, it seems that when execution is comparable between 5.5s and 5s, many originators will elect to issue the higher coupon and retain less servicing, but if the differential becomes great enough - like in April - lenders will issue the lower coupon and retain more servicing.

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