In the face of the increasingly uncertain mortgage environment, many investors are electing to lock in gains before yearend in the non-agency space. 

However, FTN Financial analysts said that for buyers still looking to invest liquidity, there is still some value to be found in the non-agency RMBS space.

According to the FTN Financial's latest Mortgage Strategy report, investors have begun to taper off RMBS investments as evidenced by bidlist volume that has slowed significantly over the past two weeks. This comes after a fairly aggressive September and early October. This, they said, is a result of investors seeking to establish yearend postures a little earlier this year.

"The key in the current environment is to identify risks and adjust pre-purchase modeling accordingly," analysts said. "While details related to the extent of the foreclosure delays are still arriving, a consensus opinion seems to be emerging. Many market participants believe that the legal issues surrounding foreclosures willextend the distressed timeline by three to six months and push severities slightly higher."

According the RealtyTrac’s preliminary data for October, there has not been an appreciable decrease in foreclosure activity. Additionally, foreclosure delays and higher severities are factors that can easily be included in the pre-purchase analysis.

Additionally, analysts said that investors will still find some attractive opportunities in non-agency MBS, even after pushing liquidation timelines and severities higher in stress tests.

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