Yields on Fannie Mae and Freddie Mac mortgage securities soared, increasing for a fifth day and signaling that interest rates on new home loans will climb amid data showing refinancing last month was slower than forecast.
Yields on Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds rose 0.09 percentage point to 4.80 percent as of 4:01 p.m. in New York, the highest since June 18 and up from 4.38 percent on July 31, according to data compiled by Bloomberg. Yields were driven up by higher benchmark Treasury rates after a report showed the U.S. lost fewer jobs in July.
The rise in mortgage rates from the record lows earlier this year has cut refinancing, contributing to a 21 percent drop in prepayments last month on Fannie Mae and Freddie Mac securities that was greater than JPMorgan Chase & Co. analysts forecast. A Mortgage Bankers Association index of refi applications has remained near 2,000 after rates moved down from recent highs, compared with the JPMorgan analysts’ projection of it reaching 3,000, a reflection of the difficulties for homeowners without the most-creditworthy profiles, they wrote in a report today.
The pace, which compares with a level more than three times higher earlier this year, “speaks to the inability of recent government policies to sustain the refinancing effort,” the analysts led by Brian Ye in New York wrote.
The Obama administration announced July 1 that a loosening of rules for Fannie Mae and Freddie Mac intended to stoke more refinancing for borrowers with little or no home equity would be expanded to help individuals owing 125 percent of their homes’ values. That was up from the 105 percent limit announced Feb. 18, when President Barack Obama said the program might aid 4 million to 5 million homeowners.
Terms for Borrowers
Under the program, borrowers with loans owned or guaranteed by Fannie Mae or Freddie Mac who have loan-to-value ratios of 80 percent to 125 percent and aren’t delinquent can refinance without buying mortgage insurance, or paying for more insurance than they already have. Rates on loans between 105 percent and 125 percent may be higher than other loans because the debt won’t be allowed into typical Fannie Mae and Freddie Mac bonds.
Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac under the “Home Affordable” program also still charge upfront fees of as much as 2 percent of loan balances when borrowers have lower credit scores or home equity.
To keep home-financing costs low for refinancers and home buyers, the Federal Reserve is also buying as much as $1.25 trillion of mortgage bonds guaranteed by the government- supported companies or U.S. agency Ginnie Mae. Net purchases total $721 billion, the central bank said yesterday.
Fixed Rates Falls
The average rate on a typical 30-year fixed-rate mortgage fell to 5.22 percent in the week ended Aug. 5, Freddie Mac said yesterday. The rate reached a low of 4.78 percent in April, before climbing to 5.59 percent in June and sparking concern that the Fed’s efforts to keep financing costs low might fail.
The so-called constant prepayment rate, or CPR, for Fannie Mae’s 30-year, fixed-rate securities fell to 18.2 last month, while Freddie Mac speeds dropped to 19.3, JPMorgan said, based on data released yesterday. The measure represents the share of the debt that would be retired in a year at the current pace.
Prepayment speeds of securities backed by loans with higher rates may have been increased by Fannie Mae and Freddie Mac buying delinquent loans out of the pools, as well as refinancing under the Home Affordable program, according to Barclays Capital Inc. analysts. The companies must buy delinquent debt out of their bonds after a certain amount of time, or if the loans will be reworked to aid borrowers. They are part of Obama’s modification plan targeting 3 million to 4 million homeowners.
“Delinquency buyouts should ramp up quickly over the next couple of months,” the analysts led including Derek Chen in New York wrote in a report yesterday.
Yields on Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds rose 0.09 percentage point to 4.80 percent as of 4:01 p.m. in New York, the highest since June 18 and up from 4.38 percent on July 31, according to data compiled by Bloomberg. Yields were driven up by higher benchmark Treasury rates after a report showed the U.S. lost fewer jobs in July.
The rise in mortgage rates from the record lows earlier this year has cut refinancing, contributing to a 21 percent drop in prepayments last month on Fannie Mae and Freddie Mac securities that was greater than JPMorgan Chase & Co. analysts forecast. A Mortgage Bankers Association index of refi applications has remained near 2,000 after rates moved down from recent highs, compared with the JPMorgan analysts’ projection of it reaching 3,000, a reflection of the difficulties for homeowners without the most-creditworthy profiles, they wrote in a report today.
The pace, which compares with a level more than three times higher earlier this year, “speaks to the inability of recent government policies to sustain the refinancing effort,” the analysts led by Brian Ye in New York wrote.
The Obama administration announced July 1 that a loosening of rules for Fannie Mae and Freddie Mac intended to stoke more refinancing for borrowers with little or no home equity would be expanded to help individuals owing 125 percent of their homes’ values. That was up from the 105 percent limit announced Feb. 18, when President Barack Obama said the program might aid 4 million to 5 million homeowners.
Terms for Borrowers
Under the program, borrowers with loans owned or guaranteed by Fannie Mae or Freddie Mac who have loan-to-value ratios of 80 percent to 125 percent and aren’t delinquent can refinance without buying mortgage insurance, or paying for more insurance than they already have. Rates on loans between 105 percent and 125 percent may be higher than other loans because the debt won’t be allowed into typical Fannie Mae and Freddie Mac bonds.
Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac under the “Home Affordable” program also still charge upfront fees of as much as 2 percent of loan balances when borrowers have lower credit scores or home equity.
To keep home-financing costs low for refinancers and home buyers, the Federal Reserve is also buying as much as $1.25 trillion of mortgage bonds guaranteed by the government- supported companies or U.S. agency Ginnie Mae. Net purchases total $721 billion, the central bank said yesterday.
Fixed Rates Falls
The average rate on a typical 30-year fixed-rate mortgage fell to 5.22 percent in the week ended Aug. 5, Freddie Mac said yesterday. The rate reached a low of 4.78 percent in April, before climbing to 5.59 percent in June and sparking concern that the Fed’s efforts to keep financing costs low might fail.
The so-called constant prepayment rate, or CPR, for Fannie Mae’s 30-year, fixed-rate securities fell to 18.2 last month, while Freddie Mac speeds dropped to 19.3, JPMorgan said, based on data released yesterday. The measure represents the share of the debt that would be retired in a year at the current pace.
Prepayment speeds of securities backed by loans with higher rates may have been increased by Fannie Mae and Freddie Mac buying delinquent loans out of the pools, as well as refinancing under the Home Affordable program, according to Barclays Capital Inc. analysts. The companies must buy delinquent debt out of their bonds after a certain amount of time, or if the loans will be reworked to aid borrowers. They are part of Obama’s modification plan targeting 3 million to 4 million homeowners.
“Delinquency buyouts should ramp up quickly over the next couple of months,” the analysts led including Derek Chen in New York wrote in a report yesterday.
