RBS predicts limited MBS impact of HARP 2.0
The impact of the Federal Housing Finance Agency's revamp of the Home Affordable Refinance Program on prepayment speeds will be largely contained to mortgages originated from 2006 to 2008, according to Royal Bank of Scotland (RBS) analysts. Analysts say HARP 2.0 will minimally — if at all — effect mortgages originated from 2003 to 2005 because most of those borrowers have loan-to-value ratios below 80%, making them more attractive to investors. For example, 2003 5s have an average LTV of 60% and less than 1% of those have LTV greater than 80%, the analysts say. In contrast, 2008 5s have an average current LTV of 86%, with 85% of those qualifying from an LTV perspective. The lower LTVs reflect slightly better underwriting from 2003 to 2005 than from 2006 to 2008. More investors are migrating to prepay-protected loans as interest rates continue downward, triggering refinancings in lower coupons. Borrowers behind 2006 to 2008 higher coupons, 5.5s and above, are the most likely beneficiaries of HARP 2.0., analysts say. They estimate prepayments on those loans will increase 5% to 7%, with the maximum increase at 11%. Additionally, the analysts say that borrowers backing 2009 to 2010 lower coupons, 4s and 4.5s, are of superior credit because of strict underwriting and more most likely to qualify for a rate refinance. The firm expects speeds to pick up as much as 5% in December after rising 15% to 20% in October. Last month, analysts at Royal Bank of Scotland said HARP 2.0 will result in just 17% of Fannie Mae and Freddie Mac 30-year loans qualifying for refinancing. Write to Justin T. Hilley. Follow him on Twitter @JustinHilley.