The Federal Housing Finance Agency’s new initiative to help streamline modifications for eligible borrowers is likely only to have a minimal impact on MBS, according to analysts at JP Morgan.
Under the new initiative, borrowers of loans guaranteed or owned by Fannie Mae and Freddie Mac will be eligible for lower monthly payments.
But JP Morgan analysts said in a report today that the program only impacts securities with loans that are between 90 and 120 days delinquent. Since it’s likely to take time to implement the modification, these loans that fall within the specified timeframe, are likely to go beyond 120 days delinquent. Fannie and Freddie already buy out loans that are delinquent for 120 days.
This limits the size of the eligible universe for loan modification. JP Morgan calculated in the report that only 0.67% of the 2006-07 RMBS are 90 days delinquent currently, and the actual take-up rate by borrowers will clearly be below 100%.
“We doubt this will provide much moral hazard incentive for borrowers who are 30-60 days delinquent to go 90 days delinquent, given that other incentive programs (such as HAMP) are already available to borrowers,” said analysts in the report.
The program begins July 1, and expires Aug. 1, 2015. It applies to borrowers with GSE loans that are between 90 days and 24 months delinquent that are at least 12 months old. Once the criteria are met the borrower will be put into a 3-month trial modification period. Once the trial period is satisfied, the modification will become permanent.