Despite the fact that the Housing Finance Regulatory Improvement Act had been talked about for weeks in the mortgage market and covered endlessly in MBSL and elsewhere, it took a speech from Gary Gensler, undersecretary of the Treasury for domestic finance, to finally bring it uncomfortably close to mortgage players' reality (see story p. 1).

"If the bill passes in its entirety, Fannie Mae.and Freddie Mac debentures could trade as triple-A corporates, which is notably wider than they have been trading," said Art Frank, head MBS researcher at Nomura Securities. "But before I even speculate on that, it would be a huge event in the mortgage market if that happened, and it would enormously change the market.

"But I am skeptical, and I do not believe the bill is likely to pass this year. And I don't even know that the Clinton Administration is, in fact, supporting the bill at this moment, but Gensler's remarks have certainly caused a stir," Frank added.

In reaction to the event, the spread between Fannie Mae 8's and Treasurys narrowed one basis point near the end of the week, to 178 basis points, after widening out more than 20 basis points earlier in the day.

As a result, Ginnie Mae securities outpaced Fannies and Freddies, which benefit from their direct government backing. Fannie Mae and Freddie Mac bonds fell in volatile trading after Gensler's testimony, which stated that the Treasury would back a bill that advocated reducing federal support for the government-sponsored enterprises.

Additionally, Standard and Poor's and Moody's stated that they.have no plans of changing the triple-A rating of the GSEs. The rating agencies affirmed their ratings of Fannie Mae and Freddie Mac, as well as the Federal Home Loan Bank System . S&P does not expect any change in the government's ties to the mortgage companies."

"While Gensler's Treasury indicated agreement with some parts of the bill, the testimony of the assistant secretary for housing, William Apgar, was somewhat less favorable," added Nomura's Frank. "I think it is very unlikely that it will pass in 2000 in anything like its current form, or even pass at all."

As for the other major news of the week - the Fed's interest rate increase of a quarter of a point for short-term rates - market sources were unsurprised, and the.raise was already built into the market.

"We're seeing a rally right now from the news," said Thomas Black, director of secondary marketing for MortgageIT. "All the borrowers are used to these rates that they're at now. They're looking at houses they can afford now. If you look at new housing starts, they've actually gone up in the last couple of months."

However, at the end of the third quarter or the beginning of the fourth, Black expects a dip in rates, as well as a refinance boom, as the economy stabilizes and election-time nears.

Though there was a fair amount of secondary activity in CMBS last week, and several bid lists, the credit curve was so flat that a lot of BBB owners "are really reconsidering why they own BBB's, especially when corporate spreads are so weak," said Michael Hoeh, head MBS portfolio manager at Dreyfus Corp.

The CMBS market was quite rocky last week (see story page 1), and the swap market turbulence certainly affected triple-A CMBS, which is very highly correlated.

Warburg Dillon Read had more than just its CMBS conduit in the market this week. Morgan Stanley Dean Witter and Warburg also had a real estate investment trust resecuritization for approximately $300 million, which was trading significantly more than comparably rated CMBS, sources said.

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