Uniform MBS May Spark ‘Race to the Bottom,’ FTN Financial Warns

The Federal Housing Finance Agency has “much more work to do” in convincing investors that the coming Uniform MBS initiative will be beneficial and prevent a “race to the bottom” in the quality of loans delivered to investors, FTN Financial’s MBS strategist team led by Walter Schmidt says in a report.

Mixing Fannie Mae and Freddie Mac sourced mortgages into a single security starting in June 2019 will remove investors’ ability to price in prepayment speed differentials between the two in the TBA (“to-be-announced”) market. Hence, the UMBS TBA will trade to the worst performing loans as it is the ...