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Over the past 30 days, we’ve seen dramatic divergence in the prospects of agency and non-agency mortgage lenders, which we discuss in detail in our post “The Impact of COVID-19 on Non-Agency Loans.” Essentially, using a playbook developed during the Great Recession, the Fed jumped in early and aggressively to support the agency mortgage market. The Fed bought hundreds of billions of dollars of agency residential mortgage-backed securities, or RMBS. Now, various industry participants are advocating for expansion of TALF, a federal lending program created in 2008, to allow the Fed also to purchase investment grade non-agency RMBS, including bonds supported by non-QM loans.
This would provide critical support for non-QM originators, including rental loan providers such as Visio. How? First, the Fed’s purchasing of non-agency RMBS in the secondary market likely would create a valuation floor for those bonds and reduce panic and margin selling by other non-agency RMBS holders. Second, with renewed stability, we could see the return of new non-agency RMBS issuance. Third, the emergence of new issuance could alleviate warehouse lender fears that new originations have nowhere to be refinanced.
Finally, all of these developments might make it feasible for originators, such as Visio, to fairly price new loans with a reasonable expectation of future refinance costs in the non-agency RMBS market.
Learn more about the pushes for the expansion of TALF and the potential economic impact in the recent New York Times article, "Private Equity Firm Pushes for Broader Access to Fed Lending Program." For additional investor resources, see our Resources Page.