Company unveils offer to spur refinancing surge
United Wholesale Mortgage (UWM), a major player in the US mortgage industry, is offering an additional 125 basis points toward the note rate to brokers who originate certain types of refinanced loans.
The move could lead to a surge in refinancings, potentially impacting investors in mortgage-backed securities (MBS), Bloomberg reported.
According to its media release, the wholesale mortgage giant is offering an additional 125 basis points toward the note rate to brokers who originate mortgages through the Department of Veterans Affairs (VA) or the Federal Housing Administration (FHA). This boost in compensation is expected to enable brokers to offer lower rates, making refinancing more attractive to homeowners.
UWM noted that this incentive is separate from broker compensation, which is capped at 2.75%, with many brokers charging less.
However, the move could be problematic for investors in Ginnie Mae-backed MBS, which guarantees VA and FHA home loans. Faster-than-anticipated repayments typically result in lower returns for bond investors as they receive their money back sooner than expected.
Erica Adelberg, an MBS strategist at Bloomberg Intelligence, commented on the potential impact: “It’s still early, but I think this increases near-term prepayment risks for Ginnie Mae securities. It also highlights the idiosyncratic risks that come with Ginnie originations being dominated by a relatively small number of large independent mortgage banks.”
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The new incentives are specifically targeted at mortgages eligible for “streamlined” refinance, a government program for loans meeting certain criteria, including being at least 210 days old with a minimum of six on-time payments.
“It remains to be seen, but these incentives may help a lot of borrowers qualify for a streamline refinance that may not have been able to before,” Brean Capital mortgage strategist Scott Buchta told Bloomberg.
UWM’s move may indicate an attempt to expand its presence in the Ginnie Mae-guaranteed loan market. Buchta estimated that there are currently about $100 billion worth of VA or FHA mortgages with rates of at least 7%.
This development followed a recent wave of VA and FHA borrower refinancings that caused concern among Ginnie Mae MBS investors earlier this year. While prepayments had since slowed, UWM’s new program could revive these worries.
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