Yesterday, we analyzed FHFA’s new policy on GSE risk-shares. Today, we move forward to assess what market turmoil means for these transactions, as well as for the broader framework of mortgage securitization. In short, this roller-coaster ride means heated demand for any yield-friendly structures (especially those in which the GSEs are counterparties) duration risk be dammed. Demand for agency debt and RMBS will continue apace, but it remains to be seen if the hedge-fund big bet on agency common stock is sustainable given acute pressures in that sector. Incentives are also growing for more portfolio lending, with a big, new question looming over the ability of the FHLBs to stay in the advance business.
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