The 30-year fixed rate agency MBS market is expected to dip significantly in May. Analysts at JPMorgan Securities believe that the amount of outstanding 30-year agency MBS should decrease by well over $30 billion, based on gross production up until May 29.

Analysts said this would be the largest one-month decline on record. The same comment was made last month when the 30-year sector dipped by more than $28 billion, a record. The rise in paydowns in May/June, along with a sustained high share of refinancings down the curve, is accelerating the drop in outstanding 30-year MBS, the firm stated.

Around 17% of 30-year borrowers are refinancing into 15-years, according to JPMorgan. Aside from this, another 10% to 12% of the 30-year paydowns are moving into hybrid ARMs. JPMorgan added that the amount of outstanding 30-year agency MBS remains on pace toward a dip of more than $200 billion in 2003. This figure corresponds to over 10% of the currently outstanding 30-year MBS.

Separately, Citigroup reported that Fannie Mae still holds more 30-year mortgages compared to Freddie Mac. Freddie Mac's first quarter report shows that 30-year fixed-rate retained portfolio holdings dropped roughly in line with the dip in total PCs in the sector, while 15-year fixed-rate holdings lagged.

Freddie's 15-year fixed-rate retained portfolio holdings only rose by $1 billion, while total 15-year fixed-rate PCs rose by $18 billion. On the other hand, Fannie Mae's holdings in the 15-year conventional sector went up by $15 billion in the first quarter. Fannie's retained portfolio has relatively more weight in 30-years. Both GSEs have 5-year holdings that are comparable in size. However, Fannie Mae's 30-year holdings are roughly double that of Freddie Mac.

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