“Buyers buy based upon payment, and those payments are still highly affordable relative to their incomes,” he said. “Even with 100 basis point swing, there’s still plenty of room in that [affordability] index.”

The concern, however, has been that as mortgage rates rise, home prices would necessarily fall, as buyers lose purchasing power. That may not be the case, according to a new analysis.

(Read more: Map: Tracking the US real estate recovery)

“History shows that a rapid rise in interest rates tends to have little correlation with home prices. Rather, rising rates are more likely to contribute to a decrease in home purchase volume and an increase in the market share of adjustable-rate mortgages,” wrote Mark Palim in a Fannie Mae commentary.

Article source: http://www.cnbc.com/id/100890224

“Buyers buy based upon payment, and those payments are still highly affordable relative to their incomes,” he said. “Even with 100 basis point swing, there’s still plenty of room in that [affordability] index.”

The concern, however, has been that as mortgage rates rise, home prices would necessarily fall, as buyers lose purchasing power. That may not be the case, according to a new analysis.

(Read more: Map: Tracking the US real estate recovery)

“History shows that a rapid rise in interest rates tends to have little correlation with home prices. Rather, rising rates are more likely to contribute to a decrease in home purchase volume and an increase in the market share of adjustable-rate mortgages,” wrote Mark Palim in a Fannie Mae commentary.

Article source: http://www.cnbc.com/id/100890224

(Read More: Housing Recovery Leaves Some Behind)

The jumbo securitization market is tiny, however, as most jumbo loans are still held on bank balance sheets. There are so far just two players in jumbo securitizations, Redwood Trust Inc. and very recently Credit Suisse Group AG, although others, including JPMorgan Chase, are preparing to join them.

There were no jumbo securitizations at all between 2008 and 2010. When Redwood dipped its toes in, securitizations totaled less than $1 billion in 2010-2011. By 2012 they hit $3.5 billion, according to Inside Mortgage Finance, and are already at $2 billion so far for 2013. Hebron believes they could surge dramatically in the very near future.

The rebirth of jumbo securitizations is being driven not just by investor confidence, but by growth in jumbo originations, which increased after the conforming loan limit was lowered. Originations of non-agency jumbo mortgages jumped by over 19 percent in 2012 from 2011, according to Inside Mortgage Finance.

So why is the conforming-jumbo spread shrinking? Not because jumbo rates are falling but because conforming rates are rising due in part to government intervention.

“Congress keeps raiding the guarantee fees (g-fees) Fannie and Freddie charge lenders in the securitization process for other purposes, like funding payroll tax cuts,” noted Hebron. “For each 10 basis point hike in g-fees, we’ve seen consumer rates rise about 0.125 percent.

Article source: http://www.cnbc.com/id/100543189

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