I ran across a very interesting article from FT's Tracy Galloway that commented on the potential ramp in agency buybacks once Freddie (FRE) and Fannie (FNM) adopt FAS 166/167. Essentially, the consolidation of formerly off-balance sheet mortgage pools would eliminate the capital disincentive for GSEs to repurchase delinquent mortgages within their pools. An increase in repurchases by the GSEs could materially increase the constant prepayment rate ("CPR") for agency-backed mortgage securities.

The effect of an increase in CPRs on agency-backed MBS is summarized quite well in Hatteras Financial's 2008 10-K: