With Fannie Mae's recent announcement of its capital plan, fears of a "massive MBS selling" have been alleviated. Analysts said that Fannie's portfolio runoff seen in January exceeded the amount needed for the capital plan, and was more a product of tight spreads between mortgages and agency debentures. Furthermore, the capital plan, coupled with the extension granted by the Office of Federal Enterprise Oversight for the GSE to meet the required 30% capital surcharge or target, also removed a lot of market uncertainty.
"FNMA's sales of its mortgage holdings were driven by tight valuations and not due to capital considerations," wrote Lehman Brothers researchers, adding that aggressive Fannie Mae portfolio sales are "unlikely." Lehman called the OFHEO's extension a "positive development" for the mortgage market because it further limits the possibility of any "fire-sale" of assets by Fannie. Analysts noted that core earnings for the GSE have been approximating $2 billion per quarter. A one-quarter extension for Fannie Mae to meet its capital target should raise about $1.8 billion of additional equity, which is equal to a $75 billion portfolio reduction. "While we had always discounted the likelihood of any aggressive portfolio sales by Fannie Mae, this extension makes that event even less likely," said Lehman.