But the firm has some good news for HARP lenders. It expects the Home Affordable Refinance Program will be extended past its sunset date at the end of 2013—with certain modifications being made to the initiative.
In its new "Outlook" report, the firm notes: “We expect HARP to continue boosting gain-on-sale margins.”
HARP will fuel $150 billion of originations in 2013, down slightly from 2012.
As for its origination estimate, KBW’s forecast is about $160 billion below a recent one made by Freddie Mac.
KBW analysts estimate that refinancings will drive 60% of originations, compared to 70% in 2012 as the Federal Reserve continues to keep mortgage rates low.
Home prices will rise by roughly 4% next year and credit availability should loosen up a little bit, according to KBW managing director of equity research Bose George. However, the firm’s analysts are not bullish on purchase mortgage activity. “We remain cautious on volume expectations for the year and expect modest growth of 5% to 10% in the purchase market,” the Dec. 10 report says.
But KBW analysts don’t expect such changes will boost prepayment speeds.
“Industry capacity constraints are restricting current volume, so any action by the FHFA to speed up refinances will not have a significant impact, in our view.”
The report notes that President Obama might replace FHFA acting director Edward Marco, who has blocked principal reductions on Fannie Mae and Freddie Mac loans.
George maintains principal reductions would have a limited impact on the agency MBS market.
Such a step would only affect delinquent loans that the GSEs would purchase out of securitized pools and modify via a principal reduction. The GSEs would absorb the losses and the loans should perform better.
“The principal reduction dispute is hard to understand. FHFA could concede on that and it would probably have no impact or a slightly positive impact,” George told NMN.