Mortgage refi boost may be short-lived
The refinancing surge on government-backed mortgages may run out in August, bank analysts said Monday.
Fannie Mae and Freddie Mac borrowers already began rushing to an expanded Home Affordable Refinance Program implemented by many banks in March. But on June 11, the Federal Housing Administration allowed loans endorsed before May 31, 2009, to refinance under a cheaper mortgage insurance premium structure than was implemented in November 2010.
The results were immediate. The Mortgage Bankers Association refi index increased 19% during the week ending June 8. It was the highest point since early 2009. Because lenders are now required to obtain case numbers from FHA only when there is an open loan application, refinance volumes began to increase before the June 11 effective date.
The index then surged again. For the week ending June 15, the MBA index showed refi applications on government loans increased 120%. (Click on the graph below to expand.)
"The surging government index clearly reflects pent-up demand as borrowers had waited for the new program to lock in rates. This situation was also exacerbated by the news that major lenders are exiting cross-servicer FHA streamline refis," JPMorgan Chase (JPM) analysts said in a note released Monday.
For Wells, the effective date for the policy was June 19. This, analysts said, forced many correspondent lenders to rush and lock-in their loans forming a spike while their windows were still open.
"The historically lower rate sensitivity of the FHA borrower and the smaller footprint of correspondent lenders today add to the surprising magnitude of the jump," Bank of America Merrill Lynch (BAC) analysts said. "Our revised speed estimates now project the full impact to be manifested on elevated speeds between July, August and potentially September."
Chase analysts said if the spike continues to play out, the refi index could double in June from May. A more conservative estimate shows a possible increase of 60%. BofA analysts suggested a 75% increase from May to June.
Still, the boost may play out before summer ends.
"The surging government index clearly reflects pent-up demand as borrowers had waited for the new program to lock in rates," Chase analysts said. "This situation was also exacerbated by the news that major lenders are exiting cross-servicer FHA streamline refis. The surge in July is likely to be followed by an equally drastic fall-off in August as refi demand is pulled forward. August speeds could well retreat."