This week, the Mortgage Banker Association’s Government Refinance Index dramatically climbed to 8872 from 4010, which is a 120% week-over-week increase.
Although the rates, which shifted higher later in the week, do not offer any explanation, A final reason why the realized speeds will be less, Barclays Capital analysts said that last Monday’s changes to the Federal Housing Administration (FHA) streamlined refinance program do.
On June 11, a new premium structure for FHA borrowers who were endorsed before May 2009 was implemented. The amendments made allow the borrowers under the program to be eligible for reduced mortgage premiums of only one basis point upfront and 55 basis points annually. Meanwhile, other borrowers need to pay 175 basis points upfront and 120-125 basis points annually.
Analysts said that most borrowers who would be eligible for this new premium structure waited until June 11 to apply. Additionally, the U.S. Department of Housing and Urban Development provided guidance to lenders on how to apply bulk cancellations of remaining case numbers for pre-May 2009, which further suggests that many chose to wait for the new lower premiums.
Similarly, Barclays analysts believe that this also explains the decreasing speeds of pre-May 2009 refinancings in previous months as well. Lenders have received plenty of advance notice and certainly could have promoted the streamlined mortgage insurance premium product to eligible clients for some time.
Still, analysts also predicted that realized speeds will be substantially fewer than the increasing index implies. One reason is that the pent-up demand is expected to increase, which is likely to be too high to sustain.
In addition, Barclays pointed out that the FHA underwriting process, which has greatly tightened since 2009, has continued to be consistent for these borrowers. Thus, even if the interest is high, many of the applications might not reach closing.
According to Barclays analysts, a final reason why the realized speeds will be less is that the government Refinance Index is calculated from a smaller sample size than the aggregate index. As a result, there will be higher volatility and so realized GNMA speeds will be harder to predict.