The January report from the Federal Reserve Bank of New York suggested that maintaining a mortgage financing system backed by the government-sponsored enterprises may not be required for competitive fixed-rate mortgages to remain available as long as private securitization markets are liquid, HousingWire reported Jan. 11.

The report noted that shares of fixed-rate mortgages tend to be 20 to 30 percent higher when lenders can easily securitize new mortgages, which is why liquidity of the securitization markets is so critical.

HousingWire noted that liquidity in the new market of non-agency mortgage-backed securities is low but starting to show improvement.

One note of caution: the January report stated that private MBS typically are more vulnerable to market volatility than are government-backed securities, which could decrease the availability of fixed-rate mortgage shares if MBS liquidity freezes.

Analysts noted that the ideal situation would be for the larger, private nonagency MBS market to increase market liquidity thereby increasing supply of 30-year fixed-rate mortgages. Also, financial regulators need to refrain from limiting securitization, which could decrease issuance because lenders may not be able to transfer risk on loans.

“Over 2004 to mid-2007, private securitization provided a close substitute for the government-backed agency MBS market as a means of diversifying the prepayment and interest rate risk associated with FRMs,” the report stated, according to HousingWire. “This enabled lenders to offer long-term prepayable FRMs to jumbo borrowers to the same extent that those loans were available in the conforming segment.”