The Federal Housing Finance Agency (FHFA) extended the Home Affordable Refinance Program (HARP) another year.

However, the government agency did not expand the program. Bank of America Merrill Lynch analysts said that this should come as relief to investors who were worried about that happening.

The eligibility date for Fannie Mae, however ,was changed to May 31 2009 from March 1 2009 to match the current Freddie Mac cutoff date. This change expands the eligibility universe for Fannie Mae pools by three months, BofA Merrill analysts said.

They noted that Freddie Mac had increased the loan-level price adjustment (LLPA) for its HARP program recently. But, Fannie Mae did not make any changes for the HARP LLPA matrix even despite that it had increased LLPAs for loans originated under the normal process.

Because of this announcement, the HARP LLPAs for Freddie will now be lower versus its LLPAs for non-HARP loans. They also noted that HARP LLPAs are capped at 2%. There are still some slight variations in HARP LLPAs between Fannie and Freddie, analysts indicated.

According to researchers, the announcement was in line with their base case expectations. "We believe that this is the scenario that the agency MBS market was pricing in," analysts wrote. "We expect minimal market impact due to the announcement."

But, this announcement does lift market uncertainty and IO markets might get a lift particularly for IOS 4.5 and 5, BofA Merrill analysts said. Their estimates showed about $5 billion more in TBA deliverable (outside of Federal Reserve holdings, pools locked up in CMO, and specified pools). The 2009 vintage FNMA 5s now becomes eligible under the program. At the margin, analysts said, it is a positive for the FHLMC Gold/FNMA 5 swap and slightly negative for FNMA 5s.

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