Today the Federal Housing Finance Agency (FHFA) announced a 10-basis-point increase in g-fees, effective for loans settling Dec.1.
JPMorgan Securities analysts think that this increase was implemented partly for the GSEs to comply with the payroll tax cut bill from December 2011. The legislation required a 10-basis point g-fee increase on average for 2012 originations versus 2011.
Although the average g-fee rise this year seems to be only eight to nine basis points versus 2011, analysts do not have sufficient data to calculate the exact rise given that they do not have the loan-level data at this juncture.
This change increases the OAS on cusp coupons by seven basis points to nine basis points, analysts stated. Higher coupons are less affected because they are already deep in the money, they stated.
Hypothetically asuming a 10 basis point annual increases in g-fees for the next three years, analysts said this will raise OASs on 30-year passthroughs by up to 19 basis points.
As part of the FHFA's announcement, the agency said that g-fees will be more uniform across originators and that longer maturity and higher credit risk mortgages will experience larger increases versus the shorter duration mortgages. This is a positive for 30-year MBS versus 15-year MBS.
They also expect further credit differentiation to be announced shortly. FHFA discussed a framework that will be released on state-based pricing, but analysts anticipate New York and Florida to rise the most.
Analysts also expect more data to be released on reps and warrants in September, as mentioned by FHFA acting director Edward DeMarco in early August.
A g-fee increase of 10 basis points from today’s levels would raise around $25 billion for the GSEs through 2021. Today’s increase followed by 10 basis point increases for each of the next three years would raise roughly $85 billion.
Separately, Chairman Ben Bernanke noted in his Jackson Hole speech that agency securities are securities issued by these agencies that include both MBS guaranteed by the GSEs and GSE debt.
Bernanke added that since GSE securities were explicitly guaranteed by the government after August 2008, Federal Reserve purchases have been confined to government-guaranteed securities. JPMorgan analysts think that this statement is incorrect and will be revised.