Non-Agency MBS Prices Jump But Will Confidence Last?(Special Report)

Byline: Bonnie Sinnock

New York-Between the government's earlier Public-Private Investment Plan move and the Financial Accounting Standards Board's mark-to-market action, it looked early last month as if the bogged-down private-label mortgage-backed securities market might be loosening up a bit.

But how far the accounting move goes toward restoring liquidity rests on whether it helps or hurts market confidence in the long term and how that plays into the fate of the slumping economy.

Non-agency residential mortgage-backed securities prices at press time had risen to levels "not seen in some time," said Jim Blinn, president of Securities Quote Xchange, Chicago. Non-agency commercial mortgage-backed securities prices also had bounced and to a greater extent than their residential counterparts as a result of both the Public-Private Investment Plan and the government's Term Asset-Backed Securities Loan Facility, said Ron D'Vari, chief executive officer and founder of New York-based New Oak Capital.

Previously dropping non-agency mortgage-backed securities prices first stabilized then rose slightly in the wake of the government's earlier Public-Private Investment Plan, according to Mr. Blinn and other market observers. But the Financial Accounting Standards Board move contributed to the boost in the securities' prices. The accounting move could improve how the private-label mortgage-backed securities hold look on paper.

There has been discussion the change could be applied to and improve first quarter earnings. That could improve banks' ability to raise capital. Financial institutions like funds and insurers could be convinced by ensuing improvements to banks' overall financial results to take more equity stakes in ...