Federal Housing Finance Agency Director James Lockhart was quoted saying that the GSEs are studying plans to raise the LTV ceiling under the Obama refinance plan to 125% from 105%. However, JPMorgan Securities analysts said that raising the LTV will only marginally affect the number of people opting to refinance.
Increased LTV could, in theory, help an estimated 9% of the borrowers who took out agency mortgages between 2006 and 2008, analysts said. At 125% LTV, only a small minority of the agency populations (3%) could still be left out of the refinance window.
Its important to realize that the 105%-125% LTV population is dwarfed by the 80%-105%LTV universe estimated at 44% of the 06-08 originations, analysts said. Clearly, the Obama plan so far hasnt made much of a difference to the vast majority of borrowers who are under 105% LTV already.
JPMorgan analysts said that the biggest hurdle to the plan's success is the cost. Fannie Mae, for example, still charges extra g-fees for 80% LTV borrowers. Freddie Mac, which eliminated these fees initially, brought them back.
Consolidation in the mortgage industry has also mean that there is less competition and less capacity. Moreover, tighter underwriting standards have become the norm.
All of these constraints lead to higher costs, analysts said. Bringing down the headline 30-year mortgage rate alone hasnt done the job of getting credit impaired borrowers to refinance. Many borrowers can ill afford to shell out a few thousand dollars upfront in order to save a hundred dollars per month.