Fan­nie Mae and Fred­die Mac will ad­just their risk-shar­ing deals so that they can ac­com­mo­date high loan-to-value loans re­fi­nanced un­der the pro­grams re­plac­ing HARP.

National Mortgage News - - Front Page - BY ELINA TARKAZIKIS

THE HIGH LOAN-TO-VALUE RE­FI­nance pro­grams re­plac­ing the Home Af­ford­able Re­fi­nance Pro­gram will re­quire a change to the struc­ture of Fan­nie Mae and Fred­die Mac’s credit-risk trans­fer deals.

The new high LTV re­fi­nance pro­grams will be avail­able on loans orig­i­nated on or af­ter Oct. 1. If the orig­i­nal loan was in­cluded in the ref­er­ence pool of a risk-shar­ing deal, the newly re­fi­nanced loan will take its place.

Cur­rently, a loan must have been orig­i­nated on or be­fore May 31, 2009 to be el­i­gi­ble for HARP and new loans orig­i­nated in the pro­gram aren’t in­cluded in the gov­ern­ment-spon­sored en­ter­prises’ risk-shar­ing deals.

“This will help pre­serve credit loss pro­tec­tion on the loans with­out un­wind­ing the pro­tec­tion paid for through CRT trans­ac­tions,” the FHFA said in a state­ment when it an­nounced the change and ex­tended HARP through Dec. 31, 2018.

The new Fan­nie Mae and Fred­die Mac re­fi­nance pro­grams should pro­vide in­cre­men­tal sup­port if home prices de­cline, ac­cord­ing to Fitch Rat­ings. But while the pro­grams are mod­er­ately credit pos­i­tive com­pared to a sce­nario with­out the avail­abil­ity of a high LTV re­fi­nance pro­gram, pre­serv­ing the re­fi­nanced loans in the ref­er­ence pools will broaden the de­fault win­dow for in­vestors, the rat­ings agency said in a re­cent re­port.

“The new re­fi­nance pro­grams should help im­prove the pay­ment sta­tus for per­form­ing bor­row­ers with lit­tle or no equity in fu­ture home price de­cline sce­nar­ios,” wrote Grant Bai­ley, Fitch man­ag­ing di­rec­tor.

Some mar­ket par­tic­i­pants may need to re­struc­ture their loan-loss mod­els de­pend­ing on how they pre­vi­ously man­aged loans in the his­tor­i­cal dataset re­fi­nanced through HARP.

“The orig­i­nal GSE dataset re­ported high LTV re­fi­nances through HARP as ter­mi­nal events that paid the loans off in full,” Bai­ley wrote. “Once the new refi pro­grams go into ef­fect, in­vestors will re­main ex­posed to de­fault risk fol­low­ing a high LTV re­fi­nance.”

The ad­di­tion of HARP data into the ex­ist­ing his­tor­i­cal dataset raises the his­tor­i­cal de­fault rates by 5%7% for the vin­tages most de­pen­dent on the pro­gram.

This could po­ten­tially sig­nify a mod­est in­crease in losses in fu­ture stressed en­vi­ron­ments.

Be­cause the Fed­eral Hous­ing Fi­nance Agency ex­tended HARP another year, Fan­nie and Fred­die’s new re­fi­nance pro­grams will take ef­fect on Dec. 31, 2018, once HARP ex­pires.

More than 3.4 mil­lion bor­row­ers have re­fi­nanced their loans un­der HARP, the FHFA es­ti­mates. But new HARP loan vol­ume has dwin­dled as home prices have in­creased. Still, another 143,000 GSE bor­row­ers could still ben­e­fit from a re­fi­nanc­ing through the pro­gram, the FHFA es­ti­mates.

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