By the Numbers
Agency-eligible loans increasingly flow to private-label securities
This material is a Marketing Communication and does not constitute Independent Investment Research.
Mortgage lenders are increasingly bypassing Fannie Mae and Freddie Mac to package agency-eligible loans into private-label securities, a sign that private markets offer some originators better economics than the government-sponsored enterprises. Issuance has reached $13 billion this year, nearly twice the total for all of last year and the most since 2021. Issuers have different motives. Some retain deeply subordinated credit bonds, effectively insuring themselves against potential losses. Others seek higher prices than GSE execution offers because of possible mispricing of credit risk or convexity. The private-label market also could provide larger originators a backstop if structural changes tied to GSE privatization weaken to-be-announced, or TBA, prices.
Agency-eligible PLS issuance surges
Through the first seven months of 2026, private-label issuance backed by loans underwritten to GSE delivery standards has topped $13 billion, well ahead of recent years. The last time securitizations backed by agency-eligible collateral exceeded that mark was 2021, when more than $17 billion in agency loans were sold in the private-label market (Exhibit 1). But the market has changed sharply in five years. The earlier increase came after former Federal Housing Finance Agency Director Mark Calabria moved to cap the volume of investor and second home loans an originator could deliver to the GSEs. Those limits forced some originators to use the private-label market for loans above the cap. Originators and securitization sponsors face no such restrictions today; they are choosing the private-label channel.
Exhibit 1: Agency-eligible PLS issuance is highest since 2021
Source: Santander US Capital Markets, CreditFlow
Why would an originator bypass the GSEs?
Mortgage originators look for best execution. For GSE-eligible loans, private-label financing generally makes sense only if it produces a higher price than TBA or specified-pool execution. A key factor is the amount and cost of required credit enhancement. Although private-label markets can price credit risk precisely and efficiently, that is only one part of the calculation. Sponsors also must weigh specified-pool premiums, ‘AAA’ spreads, the value of excess interest and issuance costs.
Sponsors evaluating GSE and private-label execution also must consider:
- The TBA dollar roll. “Specialness” in the dollar roll — when the financing cost implied by the difference between spot and forward-month TBA contract prices is below market rates — can alter the economics. A special dollar roll affects both TBA and specified-pool execution. Specified-pool premiums tend to fall as the corresponding TBA roll strengthens.
- The structure of credit enhancement. For loans delivered to the GSEs, credit enhancement is funded through the loan’s interest as a continuing guarantee fee. In private-label mortgage-backed securities, it is funded through principal subordination. As valuations of a loan’s principal and interest components change, so does the best execution.
- Market depth. Heavy private-label issuance has widened spreads, particularly at the top of the capital structure, where the investor base for AAA securities remains relatively thin.
Is private-label execution more profitable?
Comparing private-label and agency execution depends on several assumptions. The cost of private-label credit enhancement — measured as the average spread at which the credit-sensitive portion of the capital structure is sold — can vary and be difficult to determine. Rating agency and legal expenses, accounting costs, and structuring and placement fees also vary. On the agency side, loan-level price adjustments, or LLPAs, and coupon buy-up or buy-down multiples can affect execution.
With those caveats, a simplified review of a recent transaction, CHASE 2026-AGY1, suggests a modest advantage for sponsors that securitize agency-conforming loans in private-label trusts. The private-label analysis uses widely distributed prices for the syndicated portion of the capital structure, estimates for the auctioned subordinate and interest-only bonds, and a conservative estimate of transaction costs. It excludes structuring and placement fees (Exhibit 2).
Exhibit 2: Comparing agency and private-label execution
Source: Santander US Capital Markets, Creditflow, Bloomberg LP
The agency analysis uses the TBA price on the deal’s pricing date, 25 bp of base servicing valued at 3.75 times the coupon, and 21 bp of excess servicing valued at 3.25 times the coupon. It then subtracts a 50 bp base guarantee fee over an assumed four-year duration for the underlying loan pool. The analysis does not estimate LLPA delivery charges, which could reach 50 bp or more at the loan level because just under 45% of the pool has a loan-to-value ratio of 80% or greater. The estimated 12/32-point PLS advantage therefore could increase after LLPAs. Applying a half-point LLPA over four years to 40% of the pool would raise the PLS advantage above 1 percentage point, though structuring and placement fees could partly offset it.
Why issuers are choosing private-label execution
Whether this year’s surge is temporary or lasting should depend largely on relative economics. As long as private-label markets offer better execution or greater flexibility than the GSE channel, sponsors will have more reason to bypass the traditional agency market. Higher prices in the far less liquid private-label market could indicate that originators pay too much in agency MBS to insure against credit losses, receive too little for their loans’ convexity in current TBA pricing, or both. Private-label securitization also lets sponsors retain credit-sensitive parts of the capital structure, insure their own credit risk and generate leveraged returns. It also provides a backstop to the TBA market if structural changes tied to GSE privatization weaken TBA prices.
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