MORTGAGE
By Ajay Pandit
Jan 18, 2023
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Due to the agency mortgage-backed securities' disastrous performance during the financial crisis of 2008 and 2009,
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any discussion about them tends to cause lingering anxiety.
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New information from Capital Group's fixed income portfolio manager Pramod Atluri,
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however, implies that agency MBS has significant upside potential
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since the offering now appears more appealing given where rates have settled.
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To relax monetary policy and promote stability during the COVID-19 epidemic,
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the Federal Reserve purchased agency MBS for more than $1 trillion.
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Alturi wrote, "Agency mortgage customers in the U.S. have an option to return their debts early.
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As a result, mortgage values have historically increased as interest rate volatility declines.
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" Early payment options lose some of their appeal to consumers when rate volatility decreases,
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but mortgage investors gain.
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National mortgage debt was $11.39 trillion at the end of June 2022, according to statistics from the Federal Reserve,
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while home equity worth was $27.8 trillion at the end of the first quarter of 2022.
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Total household equity was $29.6 trillion in 2022, according to Yardeni Research data showing Q3 projections,
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while mortgage debt was $12.4 trillion.
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This large theoretical equity gap allows investors to feel secure in these securitized investment vehicles,
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which were once derided by the financial community.