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Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules securities MBS entering the market,35
resulted in widening spreads between the rates on a 10-year Treasury note and mortgage interest rates.36 This dynamic made it difficult for creditors to originate loans, as many creditors rely on the ability to profitably sell loans in the secondary market to generate the liquidity to originate new loans. This resulted in mortgages becoming more expensive for both homebuyers and homeowners looking to refinance. After the actions taken by the Board of Governors of the Federal Reserve System Board in March 2020 to purchase agency MBS in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy, 37 market conditions improved substantially.38
This helped to stabilize the MBS market and resulted in a decline in mortgage rates and a significant increase in refinance activity since the Boards intervention.
MBS are backed by loans guaranteed by Fannie Mae, Freddie Mac, and the Government National Mortgage Association Ginnie Mae.
36 Laurie Goodman et al., Urban Inst., Housing Finance at a Glance, Monthly Chartbook Mar. 26, 2020, https www.urban.org/sites/default/files/
publication/101926/housing-finance-at-a-glance-amonthly-chartbook-march-2020.pdf Housing Finance at a Glance on file.
37 Press Release, Bd. of Governors of the Fed.
Reserve Sys., Federal Reserve announces extensive new measures to support the economy Mar. 23, 2020, https www.federalreserve.gov/newsevents/
pressreleases/monetary20200323b.htm.
38 CARES Act Hearing, supra note 34, at 3.

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Because non-agency MBS 39 are generally perceived by investors as riskier than agency MBS, the market for non-agency and non-QM mortgage credit significantly contracted in the early months of the pandemic. Issuance of non-agency MBS declined by 8.2
percent in the first quarter of 2020, with nearly all the transactions completed in January and February before the COVID19 pandemic began to affect the economy significantly.40 Nearly all major non-QM creditors ceased making loans in March and April 2020. The non-QM market has since been recovering, with strong investor demand for non-QM MBS due to better-thanexpected performance during the pandemic.41 Many non-QM creditors which largely depend on the ability to sell loans in the secondary market in order to fund new loanshave resumed originations, although some continue to maintain tighter underwriting requirements compared to prior to the pandemic.42 Other creditors that have 39 Non-agency MBS are not backed by loans guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. This includes securities collateralized by nonQM loans.
40 Brandon Ivey, Non-Agency MBS Issuance Slowed in First Quarter, Inside Mortg. Fin. Apr. 3, 2020, https www.insidemortgagefinance.com/
articles/217623-non-agency-mbs-issuance-slowedin-first-quarter on file.
41 Bandon Ivey, Non-QM MBS Issuers Ready. But Where Are the Loans?, Inside Mortg. Fin. Jan. 29, 2021, https www.insidemortgagefinance.com/
articles/220373-non-qm-originations-and-mbsready-to-rebound-after-the-refi-boom on file.
42 Brandon Ivey, Expanded-Credit Lending Inches Up in Third Quarter, Inside Mortg. Fin. Nov. 25,
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typically specialized in non-QM
financing have shifted their focus to GSE originations due to historically low interest rates and the relative speed and ease with which GSE loans can be originated. Nonetheless, many non-QM
creditors and investors expect the nonQM market 43 to continue to strengthen in 2021 and recover to its pre-pandemic levels of production.44
As illustrated in Figure 1, the GSEs continue to play a dominant role in the market recovery, with the GSE share of first-lien mortgage originations at 61.9
percent in the third quarter of 2020, up from 45.3 percent in the third quarter of 2019. One analysis found that the FHA
and U.S. Department of Veterans Affairs VA share declined slightly to 17.4
percent from 19.5 percent a year prior.45
2020, https www.insidemortgagefinance.com/
articles/219861-expanded-credit-lending-ticks-upin-3q-amid-slow-recovery on file.
43 Refers to the non-QM market as defined by the January 2013 Final Rule. With the effective date of the price-based approach in the revised General QM
loan definition, many of these loans historically considered non-QM may qualify for QM status after March 1, 2021.
44 Brandon Ivey, Outlook on Non-Agency MBS
Issuance: Bright and Gloomy, Inside Mortg. Fin.
Jan. 15, 2021, https
www.insidemortgagefinance.com/articles/220261mixed-views-on-the-outlook-for-non-agency-mbsissuance-in-2021 on file.
45 Laurie Goodman et al., Urban Inst., Housing Finance at a Glance, Monthly Chartbook Jan, 2021, https www.urban.org/sites/default/files/
publication/103539/housing-finance-at-a-glance-amonthly-chartbook-january-2021_1.pdf Housing Finance at a Glance on file.

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