Fannie Mae-No Politics (FNMA)

[Robert from yahoo bd]

Tom Lawler helped build the Fannie Mae Mortgage Portfolio and I used to walk into his office all the time (88-93), he's a sharp guy:

https://calculatedrisk.substack.com/p/lawler-update-on-mortgage-rates-and

"As I’ve written about before, that wider spread reflects (1) significantly higher GSE guarantee fees, and (2) somewhat higher origination/servicing costs associated with regulatory changes that followed the financial/mortgage market crisis. (On the latter point, see Cost to Originate Study: How Digital Offerings Impact Loan Production Costs.)

The current primary/secondary spread is also impacted by MBS “price compression” – that is, a relatively narrow price spread between MBS at around par and the next higher MBS coupon – that is partly the result of the steeply inverted yield curve. Many lenders recoup origination costs by charging a higher interest rate and selling MBS at a premium, but in today’s market originators must “charge” about 40 bp more in rate for each one percent of MBS premium. In a more “normal” environment when the yield curve is upward sloping and interest rate volatility is “subdued,” that “tradeoff” has been more like 25-30 bp."

"Of course, most people don’t have access to Yield Book OAS. And even for folks have some historical data, the history since the financial crisis includes several extended period where excessive Fed intervention in the MBS market resulted in negative OAS. My “gut” is that an assumption of a long run average in the 35-40 bp range is probably reasonable."