Amidst ongoing pressure to meet its capital requirements, Fannie Mae released its February volume report last week characterized by a smaller retained portfolio as well as a less active guaranty business. MBS sales from its retained portfolio increased to a record $9.5 billion from $6.4 billion in January, with mortgage spreads to Agencies remaining tight through the first half of February. Mortgage-backed analysts from JPMorgan Securities noted that the last two months of MBS selling are comparable to the sales from all of last year. Meanwhile, the firm's equity researchers said that gains from mortgage sales and the benefit from rising interest rates have probably helped the GSE in making considerable progress toward attaining the capital target set by the Office of Federal Housing Enterprise Oversight.

Separately, Merrill Lynch also noted Fannie's current inclination to sell MBS. "With Fannie Mae still under pressure to boost its capital requirements, we expect the GSE to continue shrinking its portfolio over the next few months, largely through runoff," analysts wrote. "However, it is increasingly clear that the GSE is far more open to taking advantage of rich valuations and selling MBS, especially as recognizing any gains on sale helps generate incremental core capital."

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