‘Jumbo Conforming’ Won’t Be Part of TBA Trades: SIFMA

Confirming what sources had suggested for the past week, The Securities Industry and Financial Markets Association (SIFMA) said Friday that it will keep newly-conforming jumbo mortgages out of the to-be-announced market. The decision means newly-eligible conforming borrowers aren’t likely to get all of the GSE rate benefits that had been touted by many primary market participants.

“Jumbo borrowers [will] only get the benefit of guarantee in market, while the prepayment hickey and higher GSE guarantee fees are tacked onto their rate,� said one source via email earlier this week.

The economic stimulus package signed into law by President Bush this past Wednesday boosts the GSE conforming limit to as much as $729,750 through the end of this year, and also raises FHA lending limits to the same level for high-cost areas.

“SIFMA views this methodology as the most expeditious and least disruptive option currently available to facilitate securitization and secondary market activity for the higher balance loans, bringing added liquidity and rate relief to higher balance loan borrowers while not imposing additional costs or impairing the liquidity for loans falling within the pre-existing loan limits,� said Sean Davy, managing director of SIFMA’s MBS and securitized products division.

The TBA market facilitates the forward trading of MBS issued by the GSEs and Ginnie Mae by creating parameters under which mortgage pools can be considered fungible and thus do not need to be explicitly known at the time a trade is initiated – hence the name “to be announced.� The TBA market is the most liquid, and consequently the most important secondary market for mortgage loans.

SIFMA said its decision was made to ensure “the continued liquidity and smooth functioning of the current conforming loan market.”

Many industry insiders had said that including the newly-conforming jumbo loans in TBA trades would essentially raise conforming rates for all borrowers, while potentially gumming up the one part of the mortgage secondary market that is still working.

For more information, visit http://www.sifma.org.