If the Federal Reserve launches a new round of MBS buying it could cause spreads between mortgages and Treasurys to widen — as would be expected — but it also would spur returns for broker/dealers.

According to a recent report from Deutsche Bank, broker/dealers would benefit because they could buy from originators and investors and then count on turning around and selling MBS to the Fed.

But Deutsche cautions that there could also be a dark side to Fed buying, noting that there would be a "complexity" tied to eventually unwinding a large portfolio of MBS, "dramatically raising the cost of mortgage finance."

The Fed is expected to discuss its options at a policy meeting scheduled for Tuesday and Wednesday of this week.

Meanwhile, Deutsche and other investment banking firms are still trying to figure out what the effect the Obama refinancing plan will have on the MBS market — particularly on refinancings and prepayments.

But the Federal Housing Finance Agency will not provide any details on the plan until November 15.

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