Fannie Mae provided added details on what the GSE plans to do regarding the delinquencies on its MBS guarantee portfolio, and released details clarifying the timeline in which it will remove delinquent loans.
The agency said that it will repurchase between 150,000 to 200,000 of loans in March.
Barclays Capital analysts said that if the buyouts continue at this pace, 25% to 30% of the delinquency pipeline will be removed each month over the next three to four months.
If Fannie Mae repurchases delinquent loans from higher coupons first, it is likely that the agency could clear out the delinquency pipelines for 6.5s and higher by the April prepayment report, 6s by the May report, 5.5s by the June report, and all other coupons by the July report, according to Barclays analysts.
“This timeline suggests that we could see FNMA 6.5 speeds spike to over 90 CPR in the April report, while 6s could reach speeds in excess of 80 CPR in the May report,” analysts said. “Based on our assumptions, we do not expect to see material buyouts in 5.5s and lower coupons until the June report.”
Merrill Lynch Bank of America analysts said that Fannie Mae's announcement that it would buyout 150,000 to 200,000 loans from MBS trusts in March shows that the element of "servicer capacity is clearly at work here," as buyout speed was specified in terms of loan count instead of balances.
It is not apparent from the announcement whether the pace would be slower or faster in the suceeding months. The firm's view is that the rate of buyouts would be at least similar if not faster in the subsequent months. Analysts think that after going through this process in March, servicers/Fannie Mae would have a better handle on the process and they would be able to operate even more effectively in the followingmonths. From the policy perspective, analysts believe it is paramount to put these one-time buyouts behind the market as soon as possible.
They added that higher coupons are going to be bought out first. Aside from the pace of buyouts, Fannie Mae also disclosed the order of priority in which loans will be purchased. The priority will be given to mandatory purchases (such as modified loans and loans that become 24-months delinquent), loans in MBS having the highest MBS passthrough rates, loans backing CL or CI prefixes and, finally, loans having the highest unpaid principal balances. This priority structure will drive the buyout schedule by coupon, analysts said.
There are, according to BofA Merrill analysts, more uncertainties resulting from the limited information. There are a number of factors making computing the buyout schedule a little complicated. First, the GSE has provided the delinquency information based on Unpaid Balance (UPB), while the pace of buyouts was specified in terms of loan count. Second, the delinquency information was released as of December 2009. Buyouts, in the meantime, will be based on loans that will be eligible for buyout as of March 2009. The third factor is that mandatory buyouts — permanent loan modifications and 24-month delinquent loans — would have continued in Jan and Feb, which will reduce the potential buyout candidates in March.
