A note on refinancing costs,prepayment assumptions,and the value of mortgage-backed securities

This article analyzes the effect and timing of the FHA's streamline refinance program on the value of GNMA 15s. The program announced in March 1989 reduced the refinancing costs for those mortgages of 15 percent and above. The program is expected to reduce the value of GNMA's. The authors find a reduction of .47 to 3.40 points in the value of GNMA 15s during the 3-week to 13-week period following the announcement of the plan. The drop in value translates into a wealth loss for GNMA 15 holders of about $20 million over this time.