With the confirmation last week of Mel Watt as head of the
FHA, mortgage investors are watching closely and awaiting possible policy
changes and their impact on the mortgage market. The Obama administration
is strongly supportive of policy that continues to promote refinancing and low
income housing in particular. Here are a few mortgage policy dynamics to
be aware of:
One of the most important would be the extension of the HARP
cutoff date for FNMA/FHLMC conforming loans from June 2009 to June or December
2010 and allowing for borrowers to refinance mortgages that had previously been
HARP refinanced. At current levels of mortgage rates this could raise
refi speeds for 4.5% and 5% coupons by 5 to 14 CPR. This would have a
deleterious effect for mREITS who hold significant balances in higher coupon mortgages.
But it would be beneficial to mortgage servicers who process refinancing
activity. Perhaps more importantly, the presumption is that the FHA would
match any cut-off date extension by the FHFA, which would have an even larger
impact on GNMA collateral.
The FHFA could reduce or eliminate Loan Level Pricing
Adjustments for low FICO, low LTV loans which could also boost speeds by 5 to 9
CPR in higher coupon MBS. Currently, this group of borrowers represents
about 29% of HARP eligible borrowers; new borrowers in this cohort could see
their mortgage rates drop by over 1.00%
Lastly, under a Watt-led FHFA, the likelihood for reducing
the loan limits for what qualifies as conforming FN/FH collateral would almost
certainly go down-, which would not be helpful in re-accelerating the return of
the non-agency mortgage market.
Tradex Global Advisory Services, LLC
investorrelations@thetradexgroup.com
203-863-1500
@Tradex_Global
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