However, the move could be problematic for investors in Ginnie Mae-backed MBS, which guarantees VA and FHA home loans. Faster-than-anticipated repayments typically result in lower returns for bond investors as they receive their money back sooner than expected.
Erica Adelberg, an MBS strategist at Bloomberg Intelligence, commented on the potential impact: “It’s still early, but I think this increases near-term prepayment risks for Ginnie Mae securities. It also highlights the idiosyncratic risks that come with Ginnie originations being dominated by a relatively small number of large independent mortgage banks.”
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The new incentives are specifically targeted at mortgages eligible for “streamlined” refinance, a government program for loans meeting certain criteria, including being at least 210 days old with a minimum of six on-time payments.
“It remains to be seen, but these incentives may help a lot of borrowers qualify for a streamline refinance that may not have been able to before,” Brean Capital mortgage strategist Scott Buchta told Bloomberg.
Source: mpamag.com