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FHA-HAMP Takes 'Slight' Effect on Ginnie Mae Prepay Speeds: Barclays

The Federal Housing Administration’s (FHA) new Making Home Affordable Modification Program (FHA-HAMP) will have a “marginal” impact on prepayment speeds of Ginnie Mae mortgage-backed securities (MBS), researchers at Barclays Capital wrote in its “Securitized Products Weekly" report. Results from FHA-HAMP are not likely to affect speeds since Ginnie Mae has been more aggressive about buying out delinquent loans through HAMP than fellow government-sponsored enterprises Fannie Mae (FNM) and Freddie Mac (FRE), according to Barclays. The analysts believe prepayments will “increase only very slightly” with the FHA-HAMP participation. As HousingWire previously reported, FHA-HAMP mimics the HAMP already underway on mortgages owned or serviced by the GSEs. The biggest difference in the two programs is that FHA-HAMP, which became operational Saturday, allows for a forbearance of up to 30% of the unpaid principal, financed by an interest-free second-lien mortgage that is repaid as a balloon payment at the end of the original loan. As delinquency rates continue to soar on Fannie and Freddie loans, Barclays expects prepayments to increase. The rate of Fannie Mae mortgages 90 or more days delinquent increased from 3.15% to 3.94% between Q208 and Q209. The rate of Freddie Mac loans 90 days or more delinquent rose from 2.29% to 2.78% during the same period. The Barclays analysts believe as these delinquencies are purchased out of pools in the course of modification or foreclosure, there could be a significant spike in overall prepayment over the next few quarters. Citing the same delinquency data, analysts at Bank of America's (BAC) Merrill Lynch unit said HAMP will be the dominant driver of delinquency-related prepays. “We estimate that delinquent agency loans (60+ day delinquent loans) are being modified at a rate of 3.5%-4% per month currently,” the Merrill Lynch analysts wrote. “The rate of HAMP modifications could increase further because of the pressure on some big servicers and we could see around 6%-8% of delinquent agency loans being modified every month.” Write to Austin Kilgore.

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