Investors in Government National Mortgage Association MBS have little to fear from FHA's effort to juice its streamline refinancing program, according to analysts at Bank of America/Merrill Lynch.
In a new report, Merrill's analysts note that the Federal Housing Administration is planning to "grandfather" premiums for existing FHA borrowers who took out a loan before the end of May 2009.
Reducing the annual premium back to the pre-May 2009 rate -- 55 basis points -- would spur refinancings. However, the May 31, 2009 grandfather date would "drastically reduce the impact of any change," the analysts write.
FHA currently charges a 115bp annual premium on single-family loans with LTVs greater than 95%. In 2Q the agency plans to hike premiums by 10bps on most FHA-insured loans and 35bps on FHA jumbos.
The agency has yet to release details of its changes to the streamline refi program, but it's likely eligible borrowers can refinance without an increase in their mortgage insurance premiums.
The "actual impact looks to be minimal, and we believe a spike in repays is exceedingly unlikely," the BoA Merrill Lynch analysts write.
