Fixed-rate supply in 30s plummets

The 30-year fixed rate agency MBS market is expected to dip significantly in May. JPMorgan Securities said that based on gross production up until May 29th, the amount of outstanding 30-year agency MBS is projected to decrease by well over $30 billion. Analysts said that this would be the largest one-month decline on record.

The same thing was said last month, when the 30-year sector dipped by over $28 billion. 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-years, stated the firm.

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

In related news, 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 roughly dropped 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 roughly comparable in size. However, Fannie Mae’s 30-year holdings are roughly double that of Freddie Mac.