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A HARP Extension Strings Along Walter Investment Management

By Sean Williams - Apr 11, 2013 at 4:06PM

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Investors in Walter Investment Management are given the all-clear thanks to more accomodative policy moves by the Federal Housing Finance Agency.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Walter Investment Management (NYSE: WAC), a residential mortgage services provider, jumped as much as 12% after the Federal Housing Finance Agency extended the HARP program for two additional years.

So what: The Home Affordable Refinance Program, or HARP, primarily caters to homeowners who are current on their mortgages but have been unable to obtain refinancing at today's historically low lending rates because the value of their home had depreciated too much. The program has successfully helped many underwater homeowners refinance their mortgage and has been one of the stabilizing factors in the housing sectors' recovery. Walter Investment Management should be expected, with the extension of HARP through 2015, to see a steady stream of mortgage servicing activity as long as lending rates remain near historic lows.

Now what: Investors in Walter Investment Management have certainly been given the all-clear signal after today's HARP extension. Adding to the optimism, earlier this week Walter Investment purchased the reverse mortgage servicing rights to Wells Fargo's (WFC 1.92%) home mortgage business. Adding servicing rights when rates are low and the FHFA is accommodative is the perfect strategy for Walter Investment Management, whose shares are looking particularly cheap on a forward earnings basis.

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