Problems with the Mass-Refi
I had a phone conversation today with a MBS analysts . The secondary mortgage market has dried up. Not many new issues. Most say big deal. Well it is, how can we recapitalize the private mortgage market without new MBS issues?
Our conversation wandered to the proposed Mass-Refi that is in the works. Up front, as RE Investors don’t get excited. We won’t be included. Who cares about our cash flow?
Hurdles to Over Come
Here’s the BIG monkey wrench; In order to refinance the original loan has to be prepaid. You cannot change the terms of a loan within the MBS. The loan must be purchased at par value from the specific MBS.
Now, will FHFA & the Treasury find a way to make this little problem go away? You bet, there are votes involved. Black Letter Contract Law won’t get in the way of an election.
A smaller wrench; let’s say on average Fannie & Freddie are holding loans at 6%. They are refied at 4%. How will the treasury book this loss of income? At what point does Fannie & Freddie come to congress hat in hand, looking for more funding to cover the interest income loss? Or should I say come to the taxpayer.
I know this is an unpopular take on this program. To me, it seems like more bad policy at the wrong time. Kicking the can into a falling market isn’t sound economic policy.
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