The number of potential refinances in the mortgage market has dropped significantly since March, mostly due to climbing mortgage rates. Another hurdle is the loan-to-value limits for programs like the Making Home Affordable refinance program that disqualifies many underwater homeowners. For more on this, see the following article from HousingWire.
An estimated 37% of the mortgage universe is currently considered “refinancable” by the analysts, compared with 70% in March and April, since mortgage rates rallied over 5% more recently from lows seen early in the year. Even should efforts arise to increase eligibility for the refinance program, the report’s authors conclude the effect might prove minimal.
Currently, the administration’s Making Home Affordable refinance program applies to mortgages owned or guaranteed by the government-sponsored agencies and bearing no more than 105% of the present market value of the house. Discussion around possible expansion of this loan-to-value (LTV) limit to as much as 125% began last week.
Only an estimated 6% of agency loans bear LTVs between 105% and 125%, however, and analysts said any move by the administration to increase the LTV limits would therefore have no significant impact on prepayment speeds.
But then the problem might lie not with the fundamentals of the refi program, but with the originators involved in facilitating refinancings, according to analysts: “A combination of reduction in the mortgage industry workforce coupled with funding shortfalls for non-bank lenders has hampered origination capacity versus the capacity in 2003.”
For instance, borrowers considered to be in the highest tier for refinance — FICO greater than 740 and current LTV less than 80% — are prepaying at about 45% CPR compared with 60% in the ‘03 refinance wave.
The capacity issues hampering originators’ efforts to push refinancings through the pipeline are also affecting modification efforts, the report concluded.
“There was no significant pick up in modification activity across various servicers this month,” analysts noted. “We believe that servicers are facing logistical hurdles in transitioning to the new MHA program. Furthermore, it will take some time for the loan modifications under the MHA program to appear in the remittance data because a modification under the MHA becomes permanent only after 3-month trial period.”
This article was reposted from HousingWire. You can also view this article on HousingWire’s mortgage finance news website.