The White House plan to refinance upwards of $2 trillion of problematic GSE loans is running into a roadblock: MBS investors, in particular foreign buyers that are allies of the U.S.
Like what you see? Click here to sign up for a National Mortgage News free trial and daily newsletter to get the latest feature stories, news headlines, data, and in-depth analysis on the issues impacting the mortgage industry.
According to interviews with advisors, lobbyists, and trade group officials who claim to have knowledge of the effort, the Obama administration is temporarily gridlocked because of investor concerns.
One advisor, requesting his name not be published because of the sensitivity of the matter, said “nothing is moving right now.” He blames investors.
In particular, some investors are worried that 6% MBS they are presently holding could be refinanced at 4%, resulting in a 200 basis point loss in yield – which would be no small matter when you consider that these are multi-million bonds.
Some estimates range as high as $24 billion on annual yield payments that might be lost – but that money would result in cost savings, and an economic stimulus of sorts for consumers.
This advisor added that banking regulators and some of the nation’s largest banks also are concerned about what effect a massive refi program will have on their servicing portfolios. One source said that, “At some point you have to consider the greater good. No one ever assured investors that their mortgages wouldn’t prepay.”
Mortgage insurers potentially could be losers under an Obama refi plan – but only if MI coverage is not required. An MI lobbyist said that as far as he knew, waiving coverage is not part of the Obama blueprint at this time, but admitted that the White House plan might change.
Bondholders have been raising objections to the refinancing initiative because they stand to lose $13 billion to $15 billion (fair market value) according to Congressional Budget Office estimates. (The CBO estimate is based on changes to the Home Affordable Refinancing Program where massive refinancings of high coupon MBS might occur.)
“Investors know mortgages are subject to refinancing if rates fall below a certain level,” Federal Reserve Governor Elizabeth Duke said. (Mortgage rates are now at historic lows.)
However, she noted that MBS investors have been willing to pay up for higher coupons because of the barriers or “frictions” to refinancing. And they have been pricing those frictions into mortgage-backed securities market. “I don’t view changing that dynamic as being harmful to the market,” Duke said. (For the full story see the weekly paper version of NMN.)
Daily Briefing | Friday, September 16, 2011
IBM Unit Gets a Piece of the B of A MSR Package
Fannie Mae has apparently doled out part of a large subservicing contract on Bank of America MSRs to the residential servicing division of International Business Machines, according to industry advisors who have been briefed on the deal.
FHA Tweaks REO Process and Sales Blossom
The Federal Housing Administration is selling 11,000 to 13,000 foreclosed homes a month after re-engineering the way it manages and markets REO.
As GSE Loan Limit is Set to Expire, a GOP Bill is Introduced
It’s not looking good for fans of keeping the higher GSE loan limits, but that hasn’t stopped housing, realty and mortgage trade groups from promoting the issue through their elected officials.
Walter Investment Changes Titles of Green Tree Executives
Now that Walter Investment Corp., has officially purchased subservicer Green Tree Servicing, St. Paul, Minn., and its parent company, GTCH Holdings, LLC, it has changed certain job duties of executives that joined the firm.
Top Banks Quietly Flunk Fannies Mortgage Servicer Tests
Some of the nations top banks including Bank of America and JPMorgan Chase which also rank first and third, respectively in terms of housing receivables — flunked Fannie Mae’s latest test of mortgage servicers, but the GSE isnt exactly saying that.
HELOCs Coming Under New Regulatory Scrutiny
Bank examiners are exploring whether the nation’s depositories have accurately valued $845 billion of home equity and second liens, according to seven people with direct knowledge of the matter, according to a report by Bloomberg.
Originations Booming at CMG Mortgage
CMG Mortgage, San Ramon, Calif., originated $275 million of home mortgages in August, a 44% increase from the prior month.
ReMax Finds Higher Home Sales in 53 Markets
Home sales in August were up 4% over July and 18% higher than one year prior in 53 markets nationwide, according to the Re/Max National Housing Report. Traditionally, June is the highest sales month, but this year, it was topped by the other two summer months.
New CFPB Leader Pledges Tough Enforcement Regime
In his first speech since taking over for Elizabeth Warren as the public face of the Consumer Financial Protection Bureau, Raj Date warned that the agency will take a firm stance when it identifies practices that are harmful for consumers.
Subprime CDS Rally Ends, Glimmer of Hope in Mods
A Fitch Solutions report Friday shows the summer rally in U.S. subprime credit default swaps ended abruptly in August when most performance trends were negative and only an improvement in certain modifications seemed hopeful.
REITs Reject Suitor
The boards of three related non-exchange traded real estate investment trusts are calling on shareholders to reject unsolicited tender offers made by the investment firm of MacKenzie Patterson Fuller LP.