Fed 25 basis point rate hike went ignored in S/P last week, even with Yellin's press conference remarks widely construed to signal two or maybe even three increases on tap for 2017. Interest rate increases are favorable to GSE income from increases in topline revenue (homebuyers and refinancers looking to lock in before rates go up) and from ARM inventory delivering elevated margins.
Only a small share of MBS outstanding are indexed, largely to LIBOR, which tends to move slowly and at smoothed rates compared to Fed action. So, in a nutshell, all is well based on the Fed action to start to restore more market-based interest rates. Plus, hedging arrangements generally favor gains in a rising market based on historical patterns.
The other aspect to higher rates is the facilitation of future MBS sales or any new issues of preferred shares floated for recapitalization. Higher coupon rates go a long way to moderate risk concerns over weakening or possibly disappearing government guarantees... explicit, implicit, assumed or wish-listed... especially when some overseas bond markets are confronting negative rate scenarios.
For preferred share issues to help rebuild capital reserves, Fannie Mae & Freddie Mac must restore NYSE uplisting to be marketable to the major financial houses and funds. This requires divvies to be restored, immediately, on at least a partial basis, e.g. starting @ 50% of coupon and full restoration in 2 to 3 years of continued GSE profitability.
JMHO.
