Any cheapening in MBS seen following last Friday's release of a stricter GSE Reform Bill by Senate Banking Committee Chairman Richard Shelby (R-Ala.) represents a buy opportunity, according to UBS mortgage researchers. The Senate Banking Committee will meet Thursday to discuss the proposed legislation, with the Alabama Senator hoping it pass before the Senate's August recess.

Although Shelby's version may pass through the Senate Banking Committee, UBS analysts do not believe it would pass the full senate -- at least not without any reference to a Democrat-supported affordable housing fund. The final version of the bill will most likely incorporate more aspects of the Baker-Oxley Bill, which passed in May. Additionally, UBS analysts believe that the compromise needed would most likely derail any chances of passage this year.

With these strict guidelines, UBS concluded, "Shelby has been a good Republican team player, he has given the White House the hard line legislation [it] wanted. However, this hard line legislation is very unlikely to pass."

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