It seems that the combination of President Obama’s housing program to boost mortgage modifications and refinancing accompanied by rock-bottom loan rates wasn’t enough to create the desired mortgage bond repayment wave in May.
Wall Street has predicted for months that prepayments would surge as the Obama plan kicked in and mortgage rates hit record lows.
“These prepayment rates were below our expectations,” wrote JPMorgan analysts Thursday night. “We had looked for a greater degree of reactivity, given low rates in March/April and the implementation of the Obama plan. Clearly, the plan is having little impact so far.”
With average 30-year fixed home loan rates at 4.86 percent in May and 4.81 percent in April.
“Credit-impaired borrowers continue to be subject to the tight underwriting standards that the Obama plan is supposed to have eased,” JPMorgan said.
U.S. 30-year loan rates shot up to a nearly six-month high of 5.29 percent in the past week, Freddie Mac said on Thursday, reducing any incentive for many homeowners to refinance.
“We estimate that just 40 percent of the universe has refinancing incentive greater than 50 basis points, down from 70 percent two weeks ago,” JPMorgan said.
“Those anxiously waiting for the first signs of a response to the Home Affordable Refinance Program must be disappointed,” wrote Barclays analysts late Thursday. “With a mere 13 percent pick-up, Fannie Mae 30-year collateral showed no sign of any HARP effect on prepayments.”