Similar Mortgages, Different Wrapper, Different Prices
November 5, 2026
Most U.S. homebuyers care deeply about where their home is located, but relatively few give much thought to where their mortgage comes from or where it goes after closing. U.S. households carry approximately $14 trillion of residential mortgage debt,1 the majority of which (about $9.3 trillion) is guaranteed by Ginnie Mae or the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac and securitized in the agency mortgage-backed securities (MBS) market before being sold to institutional investors.2 Another $4 trillion or so of residential mortgages is purchased outright by institutional investors, which then own them as assets in their original whole-loan form.3 For remaining mortgages that end up in neither agency MBS nor whole loans, the non-agency residential mortgage-backed securities (RMBS) market represents a smaller but faster-growing source of financing.
The non-agency RMBS market surpassed $800 billion in size this year, and its expected net issuance of about $110 billion is over half the size of expected net issuance for the entire agency MBS market.4 While the non-agency RMBS market includes mortgage products ineligible for agency MBS securitization, such as non-qualified mortgages (non-QM), there has been a growing trend of agency-eligible collateral being issued in non-agency RMBS securitizations rather than being delivered to the GSEs.
The two main types of agency-eligible collateral moving into non-agency RMBS securitizations are agency-eligible investor loans and agency-conforming owner-occupied loans. Non-agency issuance of agency-eligible collateral totaled $6.4 billion in 2024, doubled to $12.8 billion in 2025 and could approach $20 billion in 2026.5 Three factors are driving this trend:
- Better execution: After accounting for the loan-level price adjustments (LLPAs) charged by the GSEs, execution in the non-agency market can be better for certain types of collateral, particularly investor loans.
- Real estate investment trust (REIT) participation: Several frequent issuers are REITs, which typically sell the higher-rated bonds of their non-agency securitizations and retain the subordinate bonds, effectively creating their own leveraged exposure to residential mortgage credit.
- Funding diversification: Guarantee fees (g-fees), the charges lenders pay to the GSEs or Ginnie Mae to guarantee a loan, have risen in recent years and remain subject to policy changes. By establishing a non-agency RMBS platform, originators can diversify their funding sources and reduce reliance on the agency channel.
Key Takeaway
When identical collateral is securitized in the non-agency RMBS market rather than the agency MBS market, one major difference is the presence of credit risk, since agency MBS carry the implicit or explicit guarantee of the U.S. government. Today’s Chart of the Week demonstrates the additional spread, measured as a discount to agency MBS, that investors gain by investing in the non-agency versions. A second consideration is liquidity risk: the agency MBS market is far larger and more liquid. For institutional investors, the non-agency RMBS market can offer interesting relative-value opportunities to capture additional spread relative to agency MBS through the presence of credit and liquidity risk.
Sources:
1Board of Governors of the Federal Reserve System – Financial Accounts of the United States (Z.1), Second Quarter 2026; 9/11/26
2Morgan Stanley Research
3Urban Institute – Housing Finance at a Glance: A Monthly Chartbook, October 2026; 10/30/26
4,5Bank of America Global Research
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