Jumbo Loan Securitization Firm, Would be Isolated by GSEs
Posted by admin under: Main Feb 07
Jumbo loan securitizations rated by Standard and Poor’s held fairly steady during the third quarter, falling to $35 billion from $35.8 billion the previous quarter, according to a report by the WSJ.
Fixed loans made up 62 percent of the third quarter’s total, down from 70 percent in the second quarter on 12 percent less volume, while adjustable-rate mortgage volume increased 22 percent.
During the first quarter, $48.3 billion in jumbo loan securitizations were rated by S&P.
The decline is tied to the lock up of the secondary market for jumbo loans, which fell out of favor with investors last summer when the mortgage crisis widened.
Meanwhile, mortgage financier Freddie Mac said it plans to keep jumbo loans separate from conforming loans if the proposal to take on larger loans materializes.
According to a report by Al Yoon, the company would package jumbo loans outside the so-called “to-be-announced,” or TBA bond market to avoid tainting the most actively traded and reliable mortgage market.
The worry is that an amalgamation of jumbo loans and agency loans would diminish the value of the bonds, as larger loans are more susceptible to prepayment, leading to higher interest rates for consumers.
“It would have the effect of raising rates to borrowers, which is not the purpose of the stimulus plan,” said Mark Hanson, a vice president of mortgage funding at Freddie Mac, at the American Securitization Forum. “We would fence it off” from the TBA market, he added.
Yoon also noted that prices on some mortgage-backed securities have already been impaired due to the anticipated rise in supply.
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Source: Jumbo Loan Securitization Firm, Would be Isolated by GSEs
Thursday, February 7th, 2008 at 10:38 am and is filed under Main. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.