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Net Issuance of Agency MBS can be thought of as driven by Existing Home Sales, New Home Sales, Cash out Refis, Amortization and Non-Agency MBS runoff. Based on this definition of net issuance, is there a reason why GNMA Net issuance decreased significantly through 2020-2021 (during the refi wave), while GSE Net issuance actually increased significantly through this period? In looking at each of the driving variables it isn't apparent why such a huge divergence occurred (there appears to be a historically wide difference between Conventional net issuance and GN Net issuance during this period).

And to just add to this, is there a general trend that emerges between Conventional vs GNMA net issuance in premium environments?

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Essentially, because of COVID. As you implicitly point out above, prepayments are usually recycled as new originations but 2020 broke that pattern because of the large number of delinquency-related buyouts in GNMA pools that needed to be cured and seasoned before repooling.

To understand the relative difference between GSE and Ginnie Mae net issuance in terms of responding to the initial wave of the pandemic, note that Ginnie Mae borrowers are more levered to the economy than the typical GSE borrower so the initial COVID-related economic downturn in 2020 hit these borrowers the hardest and resulted in a significant spike in their delinquency rates. Also, the GSEs and Ginnie Mae have different standards for buying out loans from pools so for various reasons we are more or less only now starting to see GSE buyout rates ramp up. Pages 13 and 15 in the slide deck below profile some of the trends that are supportive of this interpretation.

Ginnie Mae Global Markets Analysis Report

Added later

As FixedIncomeprof points out in the comments below, COVID is not the entire story -- there's also a significant decline in cash-out activity (as evidenced by the decline in the cash-out share of originations) in government mortgages which more or less commences in 4Q 2019 as a result of FHA and VA tightening LTV limits on cash-out refinancing in August 2019. There may have also been some tightening of underwriting guidelines by originators in response to the economic turmoil of 2020 as cash-out refinances are associated with higher default risk. More recently, there's been a substantial rebound in the level of cash-out refinance activity no-doubt driven by the enormous increases in HPI over the past two years. See p.10 of the Chartbook below for a depiction of these trends.

Housing Finance Chartbook

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    $\begingroup$ Looking back at the data, this ties out. Would you say this was the reason why Cashout Refi's were significantly higher in Conventionals vs GN's through 2020-2021, because possibly the GN lenders were more focused on Buyouts? $\endgroup$ May 30 at 17:23
  • $\begingroup$ Nice observation, I've updated my answer to reflect the omission. $\endgroup$
    – Sharad
    May 30 at 18:44

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