Wells Fargo remained the top producer of first-lien mortgages with a hefty 27.1 percent increase from the first quarter, gaining ground on all of its nearest competitors.
Large banks continue to dominate the business of servicing Fannie Mae and Freddie Mac home loans, but a group of hard-charging non-depository institutions are gaining ground. A new Inside The GSEs analysis of Fannie and Freddie mortgage-backed securities disclosures shows that total single-family MBS outstanding actually declined slightly, by 0.1 percent, during the second quarter. This was due to a 0.3 percent drop in Fannie MBS servicing – the figures do not include servicing of whole loans held by the enterprises – while the Freddie market grew 0.3 percent. Some 46.2 percent of Fannie/Freddie MBS servicing was held by banking organizations with more than $100 billion in assets. That included four of the top five GSE servicers and seven of the top 10.
The Federal Housing Finance Agency published a progress report on Fannie Mae and Freddie Mac credit-risk transfer programs this week. The report covered the first quarter and showed that together the GSEs transferred $5.5 billion worth of credit risk during the first three months of the year.The risk was transferred on mortgage loans with $174 billion in unpaid principal balance. That’s a good start to 2017 being on track with the $18.1 billion the GSEs transferred in all of 2016 on mortgages with $548 billion in UPB. Debt issuance was the largest category of CRTs, accounting for 77 percent. Reinsurance transactions followed, but represented a much smaller 19 percent share.
While lawmakers continue to mull over the multitude of plans for housing finance reform, small lending institutions said a complete overhaul of the secondary market is unnecessary. In fact, they said it would make things too complicated. Representatives from community banks spoke during a Senate Banking, Housing and Urban Affairs hearing last week focused on GSE reform. There was consensus among the community banks that there’s no need to add more guarantors in addition to Fannie Mae and Freddie Mac in the name of competition. They said doing so would just increase the regulatory burden.
Freddie Mac plans to dip its toes into the single-family rental market in the near future, but don’t expect its deal to mirror Fannie Mae’s. The GSE differentiates its single-family rental plan by focusing on the affordable segment of the rental home market. But, with no deal to announce yet, Freddie is still in the exploratory phase. A spokesman for Freddie told Inside The GSEs that the Federal Housing Finance Agency has authorized the GSEs to explore single-family rental transactions on a very limited basis. He said this was done to “help better understand the challenges and opportunities in this growing segment of the rental market.”
In a recent conference call, Fairholme Capital Management founder and Chief Investment Officer Bruce Berkowitz stood his ground regarding the firm’s investment in Fannie Mae and Freddie Mac junior preferred shares, believing that the bet will pay off in time. He made it clear that Fairholme, at this time, has no plans to sell its stake, which the firm has valued at roughly $115.7 million. But Berkowitz also made it clear he sees little chance of GSE reform passing any time soon, and he anticipates that Federal Housing Finance Agency Director Mel Watt will not permit the Fannie/Freddie capital position to fall to zero in early 2018.
The common securitization platform, if expanded to allow other users, could become a centerpiece for housing finance reform. That’s the view of Jim Parrott, a fellow at the Urban Institute and former White House senior advisor at the National Economic Council under the Obama administration. Converting the CSP to a government or government-like utility open to issuance by other guarantors could help end the Fannie Mae and Freddie Mac duopoly by reducing barriers for new entrants. Parrott added that examining which functions the GSEs currently provide that could be moved to the CSP to help level the playing field for more competition would be ideal.
The Pacific Investment Management Company believes the private mortgage market should be revived before comprehensive GSE reform. In a paper published last week, the investment management firm weighed in on the debate to reform Fannie Mae and Freddie Mac. It noted that a few small legislative changes would make a huge difference in bringing private capital back to the housing-finance market. Growth in the housing market will come if policymakers are willing to modify existing laws and regulations governing the private mortgage market, according to PIMCO. The company said that would bring back responsible mortgage lending while boosting economic growth and providing more access to credit.
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