Over the past two months, agency loans represented approximately 98% of mortgage-backed securities, up from 91% in all of 2019.

The U.S. government has guaranteed nearly all new home loans in the $11 trillion housing debt market in the months since the coronavirus took hold across America, a situation that isn’t likely to change soon, according to Barclays. For decades, the majority of all U.S. home loans have ended up bundled into mortgage-backed securities that are sold to investors like pension funds, either with or without government backing, rather than kept by lenders. Government backstops have become the norm in the decade since the 2007-08 global financial crisis, which was fueled by a boom in subprime mortgages and exotic financial products. But many industry participants have hoped to see private-sector players take a bigger slice of the pie, to spread the risk, encourage new entrants and lessen the government’s dominant role in the residential-finance supply chain. This chart shows the share of residential mortgage bonds sold with government guarantees from housing giants Freddie Mac, Fannie Mae, and Ginnie Mae falling as low as 30% of all new home loans in 2005, but shooting past 90% in recent years. Barclay’s credit researcher Dennis Lee, in a client note -- “Over the past two months, agency loans represented approximately 98% of total RMBS issuance, up from 91% in all of 2019.” Lee added -- “We believe that COVID-19 will drive residential lenders to shift more of their production into the agency RMBS market, lead to tighter underwriting standards for at least a few years, and postpone, but not eliminate, the exit of the GSEs from conservatorship, and reduce the presence of REITs in the RMBS sector for some time,” Lee wrote, referring to real-estate investment trusts.

Source: MarketWatch