Remember that little comment we made a few weeks ago regarding increased prepayment risk associated with increasing conforming loan limits? From the Securities Industry and Financial Markets Association (SIFMA) on Friday:
Higher balance loans which are now temporarily eligible for Federal Housing Authority (FHA) and GSE guarantee programs under H.R. 5140, the Stimulus Package, will not be eligible for inclusion in TBA-eligible pools. They are instead expected to be securitized under unique pool codes for trading on a “specified pool” basis or inclusion in Real Estate Mortgage Investment Conduit (REMIC) transactions.
Thank increased prepayment risk for the unique pooling. And why does the pooling matter?
Jumbo mortgages now eligible for purchase by the nation’s largest home loan finance companies [under the Stimulus Package] will be locked out of the market where trading helps lower rates to consumers…
Including jumbo loans in TBA pools would have had the unintended effect of raising rates on traditional conforming loans since investors assume they will receive the larger loans when they take delivery of the bonds, according to Freddie Mac. In TBA, the loans must be deemed fungible, so investors buy without knowing attributes.
In other words, hello “super conforming tier” and goodbye “conforming” mortgage rates for loans between $417,000 and $729,750 in San Francisco.
∙ Conforming Loan Limits: A Placeholder For Discussion And Analysis [SocketSite]
∙ SIFMA to Update MBS TBA Good Delivery Guidelines [SIFMA]
∙ Jumbo loans to be isolated from mortgage TBA: SIFMA [Reuters]
∙ If Lowering Rates Isn’t Working, Perhaps Increasing Limits Will [SocketSite]