Rate go Down - Costs go Up - Just because the 10 yr drops doesn't mean mortgage rates will respond alike.

For Rob Chrisman today...

Fannie and Freddie will increase their guarantee fee on all residential loans being pooled by 10bp on April's Fool's Day, but most believe that this increase should start to reflect on mortgage applications in February, if not sooner. Other increases might be needed over the next couple years, especially if g-fees are raised to match what a non-government institution would charge for the risk. Some estimates that I have seen on this are another 15-35 basis points over the next two years (on top of the 10bp increase effective 4/1). Lastly, yesterday the commentary mentioned a buydown ratio of 2:1. As several astute readers pointed out, the actual ratio is closer to 4:1, so a 10 basis point increase could easily cost borrowers 40 basis points, or roughly .125% in rate. And all to support a two month payroll tax waiver extension! One can just shake their heads in disbelief...




A research piece from Morgan Stanley noted that, "The FHFA will need to increase fees again to "make up" for fees not collected in Q1. This increase would depend on how much issuance would occur in Q1 versus how much will be expected in Q2-Q4, meaning if issuance was expected to go up, the additional fee increase could be smaller. In addition, it is likely that the average fees collected for HARP loans will be lower in 2012 relative to 2011 due to reduction in the LLPA cap under HARP 2.0 from 200 bps to 75 bps, and the FHFA will need to "make up" that shortfall as well. There are two ways in which the FHFA could increase fees again: another across-the-board increase, and/or an increase in risk-based fees."



Morgan goes on to say, "As part of the HARP 2.0 program changes, 30-year HARP loans will have an LLPA cap of 75bps (loans with terms of 20 years or less will have a cap of 0. This presents a significant restriction on how many additional fees can be collected from those loans. Any across-the-board fee increase will get passed on to HARP loans as well, in our view. However, any risk-based fees are more likely to be capped at 75 bps. Any future risk-based guarantee fee increase, therefore, must take into consideration how many loans are likely to be refinanced through HARP versus the non-HARP channels."