how would this possible new easy-refinance law affect AGNC?
Lawmaker unveils mortgage modification bill
If a rise in rates is what will hurt AGNC, then logicly large scale refinancing should not. Most people would only refinance to get a LOWER rate. An exception to that would be if one would want to extend the time of the loan. I don't see any other reason to re-fi at a higher rate. Agreed? This stock, by far, is the most complicated investment I've made yet. Hence the the huge dividend I see as being associated the the complexity and risk. FOXY
Yea, it's a confusing one, but keep reading. You'll get there.
The rate that would hurt AGNC when raised is the interbank loan rate, set by the Fed. That would hurt AGNC, because they would have to pay a higher interest rate on the loans they take out in order to purchase more mortgages.
If mortgage holders refinance to a lower rate, that too could hurt AGNC profits (and hence the div) because that would mean that the money they make from each mortgage they hold would be lower. That is, if people making their mortgage payments are paying a lower rate, they are paying that lower rate to AGNC.
A bet on AGNC is basically a bet that banks will continue to be able to borrow money at a lower rate than the riskiest of borrowers. It also has other risks, for instance that the government doesn't decide to let FNMA, FRE go kablooey. Many of us longs think that these are minimal risks given the ideology of the relevant players right now. The government can't risk letting banks run out of liquidity, because we all saw what happened when they did in 2008. Further, after the whole sub-prime debacle, nobody can stomach giving low interest loans to risky borrowers anymore. For the foreseeable future, Americans paying down debt at a higher rate than the banks that finance the debt seems like a reasonable bet.
This government risk very issue was well addressed in the Q&Q portion AGNC's presentation at JMP Wednesday.
Instead of me buying AGNC calls, would anyone like to bet me straight odds on this issue? I'll bet that these vote buying California politicians won't be able to do diddly squat to save their illegal-immigrant-mortgage-fraud-committing constituents from being underwater. Any takers?
It probably wouldn't be any more refinancing than what happened this last quarter when mortgage rates bottomed. Also, I doubt AGNC has any "at risk" loans out, check their portfolio, its in one of their filings. I remember them dumping the loans from the Real estate bubble years.