The tightening of agency mortgage spreads from the government's $200B purchase program is expected to have a positive "portfolio channel effect" on other risk assets. Securitized credit, particularly the non-qualified mortgage (non-QM) market, is positioned as a key beneficiary of this ripple effect as investors reallocate capital.
A $200B government purchase program, which caused a 15-basis-point rally in mortgage spreads, will have a negligible impact on the actual housing market. Forecasts for existing home sales see only a fractional increase, while the home price forecast remains unchanged as any new demand is expected to be met with new listings.
While the $200B purchase program is small relative to the $10 trillion mortgage market, it exceeds the forecasted $175B in net market growth for the year. This means the Government-Sponsored Enterprises (GSEs) are set to buy more mortgage debt than will be newly issued, a significant intervention comparable to the Fed's balance sheet runoff.
While minor policy tweaks like fee adjustments could lower mortgage costs by 10-15 basis points, more transformative changes are being considered. Allowing homeowners to take their existing mortgage to a new home ("portability") could have a much larger impact on housing market liquidity, but implementing such a change retroactively is deemed extremely difficult from a legal perspective.