If the current pace of GNMA MBS growth continues, then the outstanding balance of these securities could reach $1 trillion by the end of 2010, according to Bank of America/Merrill Lynch analysts in a recent report.
In making this projection, the analysts looked at the growth of the GNMA sector since 2Q06, when the outstanding balance of GNMA securities was $360 billion, to 2Q09, when it grew to $680 billion. In this past year alone, the GNMA market experienced a 50% annual growth rate.
The factors driving this growth, according to analysts, include the collapse of the subprime/Alt-A markets, the tightening in GSE underwriting standards, the increase in Federal Housing Administration (FHA) endorsements of purchase loans and the rise in FHA loan limits.
The report also said that banks expect the total monthly GNMA issuance to be $38 billion to $40 billion if the 30-year mortgage rate stays close to 5%, and $30 billion to $32 billion if the 30-year mortgage rate stays close to 5.5%.
Monthly net issuance should therefore be in the range of $19 billion to $21 billion and $17 billion to $19 billion corresponding to 30-year mortgage rate of 5% and 5.5%, respectively.
If the GNMA MBS market does grow to be a trillion dollars by the end of 2010, GNMAs would compromise 18% of the agency MBS market and should attract a lot more attention from different market participants. This is assuming that FHA/GNMA mortgage programs remain unchanged, BofA/Merrill analysts said.