joined the chorus of voices suggesting that a government-sponsored wave of mortgage refinancing is unlikely.
Recent record-low mortgage rates have sparked fears amongst investors that a government-driven refinancing wave would boost prepayment speeds back to 2003 levels. Such a financial policy shift would face significant logistical challenges
, according to Credit-Suisse
and JP Morgan
BarCap took a similar stance in tempering investor fears and optimism as “it is unlikely that the Fed will be willing to change the composition of its balance sheet on a whim, especially if the economic savings are not big.”
For any refi program to be a success, any risk from government-sponsored enterprises (GSEs) buy-backs would have to be waived as incentives for originators, according to BarCap. This perceived “back-door” bailout would cause some policymakers to hesitate with the future of the GSEs up for discussion in September.
"And if policymakers truly did want to focus on boosting refinancing, why wait until now?" the analsysts asked in the report. "Economic conditions were far worse at this point last year, and premium dollar prices were still high."
And according to BarCap political analysis, waiving underwriting to increase refinancing would not be consistent with other government initiatives. The Department of Housing and Urban Development
(HUD) is tightening standards on loan-to-value ratios and FICO standards, and the Federal Housing Administration
(FHA) has proposed to prohibit sub-500 FICO borrowers.
“[A]t least for now, the MBS market seems to have gotten excited over this idea with very little justification,” according to the report.
Write to Jon Prior