The secondary mortgage market could be in for historic change in the wake of President Trump this week ordering the Treasury Department to end the conservatorships of Fannie Mae and Freddie Mac and come up with a new paradigm.
A panel of the 8th Circuit Court of Appeals, in a ruling earlier this month, said a reseller of mortgages can demand that an originator repurchase defective loans, even though the contract between the two companies did not specify a timeframe within which the originator had to cure any defects. The decision reversed a lower court’s ruling.
The difference between the weighted average coupon on Fannie Mae and Freddie Mac MBS soared to an average of 10 basis points in January, with Fannie pools showing consistently higher spreads. According to a report by Wells Fargo Securities last month, the wide gap may be because Fannie is offering sweeter guarantee-fee buy-up/buy-down deals to some issuers.
Fannie Mae and Freddie Mac racked up $25.19 billion in combined net income in 2018, their most profitable year since 2013, when earnings were inflated by accounting rules for deferred tax assets. [Includes one data chart.]
Several high-profile civil rights groups this week threw cold water on Sen. Mike Crapo’s plan to reform Fannie Mae and Freddie Mac, saying it would weaken regulation of the government-sponsored enterprises and increase the cost of homeownership.
Fannie Mae and Freddie Mac, scheduled to report fourth-quarter results in early February, are likely to once again show strong earnings, but the black ink likely will pale a bit from the $6.7 billion they posted (combined) in the third quarter.