Hoosier Banker 19 loan, a borrower’s new all-in payment rate (mortgage rate + MIP) must be at least 50 bps below their current level. That simply is not possible for most FHA mortgages in existence today. As a result, the impact on prepayment speeds for Ginnie Mae MBS will be minimal, at least for now. The landscape will certainly change if rates fall materially in the future but we should not expect to see a significant impact on prepayment speeds in the near term. Instead, the most consequential outcome of the MIP cut may be a marginal shift in production from conventional loans to FHA loans. In January, Fannie Mae and Freddie Mac announced a range of pricing changes applicable for conventional loans that will become effective in May 2023. Some borrowers’ costs will be reduced while others will go up. The MIP cut, which reduces monthly payments for all FHA borrowers across the board, combined with the pricing changes on conventional loans, will make FHA loans comparatively less costly than conventional loans for a swath of borrowers, those with FICO scores between 680-760 and LTVs below 95. As a result, we could see some loans that would have otherwise been securitized into Fannie or Freddie MBS shift into Ginnie MBS. That would translate into a marginal increase in the supply of Ginnie MBS at the expense of Fannie and Freddie MBS. This should not have a material effect on valuations or demand but would swing the supply needle further toward Ginnie Mae production at a time when their market share is already rising. As persistently high home prices and rising mortgage rates have eroded affordability, many borrowers have fallen out of conventional loan eligibility and sought refuge in the looser credit qualifications of FHA loans, a trend which may only be exacerbated by the MIP cut. The upside for investors is slightly faster prepayment speeds if rates fall and potential for increased supply of loans available for pooling into attractive Ginnie CMO structures with 0% risk weighting. HB It takes more than good intentions to transform communities. It takes capital, development capacity and trusted partnerships. In 30 years, we’ve delivered more than $9.3 billion in community impact. Overcoming challenges. Solving problems. Backed by a commitment to creating healthy communities that has never wavered. The Return on Investment: Safe, Affordable Homes. Healthy Communities. Better Lives. Transforming Communities. Transforming Lives. CINNAIRE.COM INVESTING IN HEALTHY COMMUNITIES FOR 30 YEARS. ANNIVERSARY MILESTONE Congratulations to Horizon Bank, Michigan City, on the bank’s 150th anniversary. The bank received its first charter under the name of First National Bank in April 1873. The pillars outside its headquarters in Michigan City still stand from the original location 150 years ago. During the last century and a half, the bank has grown from a single location in northwest Indiana to over 70 locations across 40 counties throughout Indiana and Michigan with over $7 billion in assets. HB
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