People familiar with specified pool trading recognize pools serviced by the state housing finance authorities as an expanding sector with a rich set of behavior. The Idaho Housing Finance Authority leads all HFAs in servicing volume, with roughly $18B in Fannie, Freddie and Ginnie loans.[1]
In the October prepay report, an outsized acceleration in speeds on FNMA pools serviced by the Idaho HFA caught our attention because no similar acceleration was occurring in FHLMC or GNMA pools.
Digging deeper, we analyzed a set of FNMA pools totaling around $3.5B current face that were serviced entirely by the Idaho HFA. These pools experienced a sharp dip in reported forbearance from factor dates August through October, dropping from nearly 6% in forbearance to zero before rebounding to 4.5% (black line). By comparison, FHLMC pools serviced by the Idaho HFA (blue line) show no such change.
Seeking to understand what was driving this mysterious dip/rebound, we noticed in the October report that 2.7% of the Fannie UPB serviced by the Idaho HFA was repurchased (involuntarily) on account of being 120 days delinquent, thus triggering a large involuntary prepayment which was borne by investors.
We suspect that in the September report, loans that were in COVID-forbearance were inadvertently reclassified as not in forbearance. In turn, this clerical error released these loans from the GSE’s moratorium on repurchasing forbearance-delinquent loans and triggered an automatic buyout of these 120+ day delinquent loans by FNMA.
We have asked FNMA for clarification on the matter and they have responded that they are looking into it. We will share information as soon as we are aware of it.
[1] Idaho HFA services other states’ housing finance authority loans, including Washington state and several others.
If you are interested in seeing variations on this theme, contact us. Using Edge, we can examine any loan characteristic and generate a S-curve, aging curve, or time series.
