The mortgage-backed securities (MBS) market is undergoing a shift in both its demand and supply components that have important implications for the industry. Investor profiles are likely to change, given the diminishing availability of US Treasury securities, the uptick in rates, as well as actions from the Federal Reserve.

On the supply side, the MBS market is set to experience a decline in new securities. This comes as mortgage servicers are increasingly opting for loan modifications to substitute for the refinancing option. Mortgage servicing rights (MSR) are then taken out of the MBS market and placed into the loan modification plan. This, in turn, increases liquidity, prolongs affordability periods, and enhances financial systems’ stability.

Key points:
• The MBS market is shifting in both its demand and supply structure
• Investor profiles will likely change as a result of reduced availability of US Treasuries, higher interest rates, and Federal Reserve actions
• MBS market is likely to experience a decline in new securities, as mortgage servicers opt for loan modifications to substitute refinancing
• Modifications provide enhanced liquidity, increased affordability period, & improved financial systems stability

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