PSPA modifications would have little affect on lenders, analysts say

It would be a modest benefit to public mortgage companies if the newly appointed head of the Federal Housing Finance Agency lifts some of the buying restrictions that her predecessor placed on state-sponsored companies in January, industry analysts say.

The limited impact is due to "the context of a market that will decline 40% between 2020 and 2022," said Bose George, analyst at Keefe, Bruyette & Woods. Acting director Sandra Thompson, who is removing caps on investments and higher-risk loans, would only open some lines of business to the more traditional mortgage lenders, but not enough to cover the sharp decline in refinancing going forward.

"So I feel like the changes that could happen are changes on the verge," said George. "I don't think it's going to really change the mortgage market in a way that really matters to the investing community."

In fact, after some initial euphoria, the share prices of four of the five mortgage companies that went public recently were back below their pre-Collins v. Yellin.

"These are great lenders and things that happen on the fringes are not really going to affect them because they are a big part of what happens, by and large," said George.

The list of recent public mortgage lenders includes Rocket Cos., LoanDepot, United Wholesale Mortgage, Guild, and Home Point Capital. One sign that investors have already devalued the FHFA decision is that only Guild Mortgage closed on July 1 at a higher rate than on June 22, the day before the decision was published.

The January deal was net positive for the business of unqualified wholesale mortgage lender Angel Oak Mortgage Solutions, largely because it made customers more familiar with their product niche.

"I would say a lot of it was that it helped us in our awareness-raising efforts," said Tom Hutchens, executive vice president. "We and other unqualified mortgage lenders could say," Listen, the upper limits do not apply to the non-QM area. ""

Part of what former FHFA director Mark Calabria wanted with the caps was to attract private capital to support mortgage loans.

“We have always believed that the market needed more private capital options. And to me this is a perfect example of this, thank god there are options, otherwise originators had to just turn the deal down because they were already beyond their limits, ”said Hutchenss.

The second homes and investment properties that the caps are primarily targeting don't quite align with the Biden administration's goal of expanding housing options in the United States, Hutchens noted.

However, should those caps be lifted, seeds would be sown with the third-party manufacturers Angel Oak works with that will drive the company's business forward.

Hutchens and William Tessar, the president of Civic Financial Services, are also optimistic right now because the interest rate differential between the agency and non-agency market is so narrow that the price advantage of selling to the GSEs does not outweigh the convenience factor of working together private lender.

Both Angel Oak and Civic provide business loans; Angel Oak also makes bank statement mortgage products.

While the imposition of the GSE cap had an impact on Civic's business, "it was more visual than moving the needle," Tessar said.

Civic's long-term rental 5/1, 7/1, or 10/1 adjustable rate mortgages have rates "so low in this particular sector that they can rival any traditional lender," Tessar said.

"That is a big driver, especially in view of this large spread difference between our prices and the conventional rental property," said Tessar. As for the caps, "I think it has an impact but not a material one" and therefore would have a limited effect if they were removed.

Mortgage insurers, whose current business model is heavily dependent on the GSEs, could initially benefit from possible changes by Thompson.

"The initial outlook is positive and that's really because the FHFA under the new director tends to be very supportive of consumers," said George of KBW. "But at the same time, it's hard to argue at the moment that the consumer needs help, at least on the GSE side, because you know that housing is obviously very strong and because crime rates are very low."

From this point of view, KBW believed that the move at FHFA was good for the MIs in the short term as it provides support to the market when needed, which does not seem to be the case at the moment.

The long-term outlook is mixed as lower government involvement in the mortgage business is seen as positive for the MIs but the Biden government is expected to have a larger presence in the housing sector, George said.

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