Whalen Global Advisors Publishes Residential Mortgage Finance Outlook
Whalen Global Advisors Publishes Residential Mortgage Finance Outlook

Press Release

updated: May 22, 2023

Fed Rate Hikes, FDIC Sales Suggest Higher Mortgage Rates Ahead

Whalen Global Advisors today published the Mortgage Finance Outlook for June 2023, the unique review and outlook for the US mortgage industry. WGA Chairman Christopher Whalen commented on some of the key findings on the eve of the Mortgage Bankers Association Secondary Market Conference.

“A lot of lenders tell us and their clients that mortgage rates are headed to 5.5% this year, but we beg to differ,” notes Whalen. “Getting 1-4 family loan coupon rates to 5.5% as many lenders believe requires that MBS rates move down 150bp into the mid-4s. To the contrary, we think that further Fed tightening, plus sales of MBS from FDIC and banks generally, may force mortgage rates higher into 7% range.”

Additional findings:

  • Home prices in the US rose 40% from 2020-2021, yet the average loan-to-value ratio at the end of 2022 was 91% for first time home buyers. The average loan coupon for all US mortgages is roughly 3% vs the current production today over 6.5% annual rates.
  • Questionable loan repurchase claims by the GSEs, Fannie Mae and Freddie Mac, are soaring as these agencies desperately try to shed low-coupon loans created during the Fed’s period of “quantitative easing.” In many cases, the conventional loans subject to repurchase demands are performing and show no signs of delinquency, yet FHFA Director Sandra Thompson is pressing repurchase claims.
  • Low coupon loans represent a dire threat to mortgage lenders and even the GSEs themselves, which must repurchase delinquent loans from conventional MBS pools at par. The Community Home Lenders of America report that lenders are losing as much as 30% of the original face amount of the loan when these mortgages are modified resold into MBS in the secondary mortgage market.

“Home prices have only fallen 5% since the peak of average prices nationally a year ago,” notes WGA Chairman Christopher Whalen. “Yet somehow, we have less than 10% equity supporting the residential mortgage market generally after almost a decade of extraordinary policy from the Fed.”

The report notes that the equity beneath FHA/VA loans is basically zero, with a 97% average LTV nationally. WGA expects residential home prices in high-cost blue states to continue to weaken, while lower cost red states are likely to see modest gains.

Copies of the IRA House Finance Outlook are available to subscribers to the Premium Service of The Institutional Risk Analyst. Standalone copies of the report are also available for purchase in our online store. Media wishing to receive a courtesy copy of the report please email: [email protected]

About Whalen Global Advisors LLC

Whalen Global Advisors LLC (WGA) is a New York-based consulting, risk analytics and publishing company that focuses on financial institutions and global markets. WGA publishes The Institutional Risk Analyst (ISSN 2692-1812), including commentary on the capital markets, industry reports and company profiles. For additional information, please contact us at: [email protected]

Source: Whalen Global Advisors LLC

Originally published at https://www.newswire.com/news/whalen-global-advisors-publishes-residential-mortgage-finance-outlook-22043306