#Fanniegate: Will Private Capital Dry Up In The Absence of GSE reform?

Posted On March 09, 2015 In Government, GSE, Housing | Add Your Voice

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If Fannie Mae and Freddie Mac are not reformed, there is a good chance private capital will abandon the mortgage lending space. That’s what mortgage industry professionals told us in our March Mortgage Industry Outlook Report. In fact, the biggest risk associated with keeping Fannie Mae and Freddie Mac as-is, according to our survey respondents, is private capital abandoning the space.

http://www.collingwoodllc.com/voiceofhousing/government/2015/03/will-private-capital-dry-up-in-the-absence-of-gse-reform/

Even with historically high guarantee fees and loan level price adjustments, Fannie Mae and Freddie Mac’s pricing is more aggressive than pure private sources because of government guarantee and the temporary QM exemption. With so few purely private transactions in the marketplace today, it is difficult to accurately price the credit risk. Respondents reported that it is important to have sufficient reserve capital and/or private mortgage insurance in place to protect taxpayers from the next business cycle downturn.

Some suggested combining Fannie Mae and Freddie Mac into a single entity or moving to a single security. In contrast, other respondents indicated that the biggest risk is the government using the GSEs as a political instrument or as a piggy bank used to fund budget shortfalls. What do you think? What will happen if GSE reform doesn’t happen and Fannie Mae and Freddie Mac are kept as-is in perpetuity?

For the full results of our survey click here:

Paul • 11 hours ago

Biggest risk is undermining of confidence in the rule of law as gov agencies trump the law, businesses shy away from trust in gov, private banks refuse to make affordable 30 year home loans, homeowners suffer from higher mortgages, demand weakens driving down home prices and a repeat of 2007-2009 occurs. This time gov won't be able to pin the blame on GSEs, and might not be able to stop collapse. Gov can take over GSEs and add $6 Trillion of liabilities to gov B/S.

Or they can end the Sweep now, recapitalize GSEs, use DTAs and accounting voodoo to reverse the reserves for losses they forced on GSEs, and release GSEs from conservatorship. They ably back-stopped housing finance for 70 years before repeal of Glass Steagall in 1999 turned banks loose into sub-prime toxic mortgage behemoths.

GSE reform has tightened their operations. They just need to recapitalize and be released to continue doing the job they've done well for decades, adding fuel to American economic growth and prosperity.