Fitch Ratings believes that the FHFA proposal to lower loan purchase limits for Fannie Mae and Freddie Mac will have only a “modest” impact on revitalizing private label mortgage lending.
The ratings agency said in a report today that based on 2012 mortgage lending figures, had the FHFA implemented then the roughly 4% cut its proposes today, it would have shifted just 1% of borrowers to the private jumbo market.
The 4% cut the FHFA proposes on loan purchase limits would reduce lending to $400,000 from $417,000 and $600,000 from $625,000 for high cost states and could go into effect as early as October 2014.
Fitch believes that the initiative is a step in a right direction toward reducing the government’s role in mortgage finance. Increases in guarantee fees announced earlier this month should further encourage a return of private capital to the market.
Fannie and Freddie will adjust guarantee fees in three ways. The ongoing annual g-fee will increase 10 basis points for all mortgages loans backed by the GSEs. The one-time upfront g-fee will be updated to better align pricing with the credit risks of borrowers such as the credit score and loan-to-value ratios.
The upfront, 25-basis-point "adverse market fee" that has been assessed on all mortgages purchased by Fannie and Freddie since 2008 has been eliminated for most markets, except New York, New Jersey, Florida and Connecticut where foreclosure costs and timelines remain lengthy. The changes go into effect on April 1 2014 for loans exchanged for mortgage-backed securities.
“These measures may result in somewhat higher non-agency production, albeit at a sharply lower total loan volume from 2012-2013’s levels given the drop in refinance activity,” said Fitch. “Taking that scenario into account, it is unlikely to translate into a significant increase in private label RMBS issuance next year. Rather, these changes may further support the strong portfolio bid for high quality mortgage assets.”
Fitch expects that issuance in private label RMBS in 2014 will surpass the $13 billion in volume issued this year.