Whalen Global Advisors Publishes Mortgage Finance Outlook, Revealing Concerns Over Rising Rates and Home Equity
BRIARCLIFF MANOR, N.Y., May 22, 2023 (VSNewsNetwork.com) - Whalen Global Advisors (WGA) has released its highly anticipated Residential Mortgage Finance Outlook for June 2023, providing valuable insights into the state of the US mortgage industry. The report, authored by WGA Chairman Christopher Whalen, highlights key findings that challenge prevailing expectations and raise concerns about the future of mortgage rates and home equity.
Contrary to the popular belief that mortgage rates will reach 5.5% this year, WGA asserts that further tightening by the Federal Reserve and the sale of mortgage-backed securities (MBS) from the FDIC and banks could push mortgage rates even higher, potentially into the 7% range. This prediction contradicts the optimism expressed by many lenders and underscores the potential challenges faced by borrowers in the near future.
Another significant finding in the report is the precarious state of home equity in the US. Despite a 40% increase in home prices between 2020 and 2021, the average loan-to-value ratio for first-time homebuyers stood at a concerning 91% by the end of 2022. Additionally, the average loan coupon for all US mortgages is around 3%, while the current production rate hovers above 6.5% annually. This disparity suggests potential risks and vulnerabilities within the mortgage market.
The report also sheds light on the escalating number of questionable loan repurchase claims made by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. These claims predominantly target low-coupon loans originated during the Federal Reserve's period of quantitative easing. Despite the absence of delinquency, FHFA Director Sandra Thompson has been urging repurchase actions, further complicating the landscape for lenders.
Furthermore, low coupon loans pose a significant threat not only to mortgage lenders but also to the GSEs themselves. Lenders are reported to be losing up to 30% of the original loan amount when these mortgages are modified and resold in the secondary mortgage market. This highlights the potential financial strain faced by industry players due to the repurchasing obligations associated with delinquent loans.
In terms of home equity, the report reveals that FHA/VA loans exhibit a concerning lack of equity, with an average loan-to-value ratio of 97% nationwide. WGA predicts that residential home prices in high-cost blue states may continue to weaken, while lower-cost red states could experience modest gains.
Interested parties can access the comprehensive Mortgage Finance Outlook report through The Institutional Risk Analyst's Premium Service subscription or purchase standalone copies online.
Source: Whalen Global Advisors LLC via Newswire
