Fannie Mae-No Politics (FNMA)

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Housing refinancing policy expanded, as expected... Impacted MBSs..
Last update: 10/24/2011 10:01:57 AM


By Al Yoon
Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--Mortgage-backed securities issued by Fannie Mae and Freddie Mac dropped in price Monday after the main housing regulator said it would expand an existing refinancing program to more borrowers and remove some hurdles that have kept banks from approving new loans.
MBS tied to loans with high interest rates fell the most as those mortgages are the ones most likely backed by properties whose values have fallen below the loan balance, reducing the equity needed for a typical refinance.
Under the new plan, the Federal Housing Finance Agency will allow refinancing of loans guaranteed by Fannie Mae and Freddie Mac no matter the home's value, and extend the term of its Home Affordable Refinance Program through 2012, the FHFA said in a statement. It will waive some liabilities to banks, making the lenders more willing to make a new loan with risky characteristics.
Investors had been speculating about an expansion of the plan for months but the announcement's breadth has surprised the market, analysts said. Some investors expected the changes would be more limited, and thus have little impact on the amount of refinancing.
As a loan is refinanced, the principal is returned to the investor at face value, or 100 cents on the dollar. But with high-rate MBS, such as those with 6% coupons trading at 109 cents on the dollar, prepayments cause steep losses.
Fannie Mae 6% MBS fell 14/32 to 109-8/32, underperforming Treasury benchmarks by the same degree, according to Locus, a Credit Suisse analytic platform. Fannie Mae's 4% MBS declined 5/32 to 103-4/32, lagging their benchmarks by about 2/32.
-By Al Yoon, Dow Jones Newswires; 212-416-3216; [e-mail]
(END) Dow Jones Newswires
October 24, 2011 10:01 ET (14:01 GMT)