Mortgage forbearance won't be credit event for MBS investors, JPM says

  • Even with the forbearance to homeowners that's included in coronavirus-related legislation, the explicit Ginnie Mae wrap and GSEs' line of credit at the U.S. Treasury will protect the timely payment of principal and interest to mortgage backed securities investors, write JPMorgan MBS analysts Brian Ye, Alex Kraus, and Nicholas Maciunas.
  • Fannie Mae (OTCQB:FNMA -4.0%) has $113B and Freddie Mac (OTCQB:FMCC -3.4%) has $140B available from the Treasury Department, enough to support advances to investors for a year if GSEs' entire book went delinquent.
  • Forbearance would initially slow refi speeds, a benefit as the universe is trading at a premium, they wrote.
  • For the most part, servicers would be required to advance P&I to investors during the forbearance period, which could mean significant outlays for some servicers.
  • "The Ginnie model generally leaves servicers on the hook for longer and for larger outlays than the GSE model."
  • Interested parties include: Mr. Cooper (COOP +4.4%), Ocwen Financial (OCN -7.8%), New Residential (NRZ -12.4%), PennyMac Financial (PFSI -9.8%).
  • Previously: Ginnie Mae offers help to mortgage servicers(March 28)
  • ETFs: DMO, PGZ, TSI, JLS, CMBS, LMBS, FMY, MBSD, JMBS, MTGP, GSST, IMFC, LGOV

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