By the Numbers

Steady progress on FDIC agency MBS pool sales

Brian Landy, CFA | May 12, 2023

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.

The Federal Deposit Insurance Corporation has sold 16% of its agency MBS pool portfolio since the start of auctions on April 18. The FDIC also sold its roughly $1 billion non-agency MBS position early in the process. And more recently, it started selling portions of its agency CMO and conventional agency CMBS portfolios. Since most of these assets have moved to portfolios outside the banking system, the smooth process so far suggests a healthy and surprisingly easy diversification of the buyer base.

The FDIC has sold $9.8 billion of agency MBS pools over four weeks of selling, comprising conventional 30-, 20- and 15-year pools and Ginnie Mae 30-year pools (Exhibit 1). Most of the pools had coupons ranging from 1.5% to 3.0%, which make up the bulk of the portfolio. However, it did sell a small amount of Ginnie Mae 4.5% and 5.5% pools. The sales were skewed towards products other than conventional 30-year MBS. For example, roughly 12% of the conventional 30-year portfolio was sold, compared to 18% of the 20-year pools, 15% of the 15-year pools, and 26% of the Ginnie Mae pools.

Exhibit 1. The FDIC has sold 16% of its SVB & SBNY Agency MBS portfolio.

Not all upsizes may be included.
Source: BlackRock, Santander US Capital Markets.

The first agency MBS pool auction was conducted on April 18, the second auction on April 20, and subsequently held three auctions per week. The first auction each week has focused on 30-year MBS (Exhibit 2). Most of the pools sold were 2020 and 2021 vintage, with coupons ranging from 2.0% to 3.0%. Some generic pools were sold, but most of the pools were specified pools with advantageous prepayment characteristics. Low-loan balance pools, low-FICO pools, 100% Florida pools, and 100% Texas pools all tend to prepay somewhat faster in a turnover environment and refinance more slowly in a refinance environment. The largest amount sold was $1.5 billion on May 2, including upsized amounts although some upsizes may be missed since that color is not disseminated broadly.

Exhibit 2. FDIC sales of 30-year conventional MBS.

Not all upsizes may be included.
Source: BlackRock, Santander US Capital Markets.

The sales of 15-year MBS commenced on April 20, and three auctions of this collateral have been held so far (Exhibit 3). The pools were mostly 2.0% and 2.5% coupons and 2019 through 2021 vintage, although a small amount of 1.5%s and 3.0%s were also sold. The lists contained a mix of generic pools and low-loan balance pools.

Exhibit 3. FDIC sales of 15-year conventional MBS.

Not all upsizes may be included.
Source: BlackRock, Santander US Capital Markets.

The remaining collateral has generally been sold on the middle list offered each week, on Wednesdays (Exhibit 4). This has included conventional 20-year and 10-year pools, mostly generic collateral along with some 20-year Max $175K pools. As with the 30- and 15-year lists, these pools are low coupon production from 2020, 2021, and 2022. The Ginnie Mae 30-year pools have also been sold on these lists, and included the typical low coupon, recent production, generic pools. But they also sold some items with higher coupons—3.5%, 4.5%, and 5.5% generic collateral and some 4.5% 2022 jumbo collateral.

Exhibit 4. Sales of conventional 20- and 10-year MBS and 30-year Ginnie Mae

Not all upsizes may be included.
Source: BlackRock, Santander US Capital Markets.

Elsewhere in structured products, the FDIC sold its entire non-agency MBS position, about $1 billion early in the process. Sales of agency CMOs started a couple weeks ago, and included lists of $426 million and $433 million, which is about 3.7% of the total CMO portfolio. And the first agency CMBS sales were conducted this week, containing roughly $532 million Freddie K deals, which is about one-third of the total balance of those deals in the FDIC’s portfolio. The FDIC has not yet sold any Ginnie Mae project loans. It also has not sold any non-agency CMBS or small business administration bonds, although both of those are a small part of the overall holdings.

The first limited auction of agency MBS pools is scheduled for Tuesday, May 16. This is based on a reverse inquiry process. The list is roughly $10 billion in size, so about double the total amount of pools sold over the first four weeks of this process and clearly accelerating the liquidation of the FDIC portfolio.

A large share of assets sold have gone to total return portfolios, a significant change from 2020 and 2021 when a large share of MBS moved from mutual funds and other total return portfolios into banks and the Federal Reserve. Increased holdings among total return accounts should improve the trading liquidity of the MBS and other affected markets and the policing of relative value.

Brian Landy, CFA
brian.landy@santander.us
1 (646) 776-7795

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