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

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

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: