Potential Changes to GSEs Gaining Steam
Folks, if you have not been hiding under a rock since 2009, you know that both FNMA and FrMAC have been under ‘conservatorship’, regulated by FHFA for over the past 10+ years.
If you’ve been paying attention, you also know that over the past few years there has been increasing talk to end the conservatorship, and now, to add competitors to the GSE’s in the mortgage loan purchase arena.
That prospect is outlined in the latest Report to Congress by Mark Calabria, Director of FHFA, summarized in this article posted Tues, June 16, 2020, in Mortgage News Daily:
The Federal Housing Finance Agency (FHFA) released its annual Report to Congress for 2019 on Monday…
FHFA Director Mark Calabria again called on Congress to reform the nation’s housing financing system, saying that only legislative action can address the flaws that were at the root of the 2008 financial crisis and continue to pose risks to taxpayers and financial stability. He said, “There are critical vulnerabilities in our housing finance system that put taxpayers and our housing market at risk. The financial stress on our mortgage markets caused by the COVID-19 crisis is only the latest example.”…
FHFA is asking to be given additional regulatory and supervisory authority to prepare for the eventual end of the GSE conservancy…
The report says that prior to the financial crisis of 2008, the GSEs with their congressional charters, size, and importance within the system, created the impression that they were “too big to fail” and thus had the implied backing of the federal government behind their own loan guarantees. Relying on that perception, each GSE was able to borrow at interest rates close to that of the federal government while maintaining unsafe and unsound levels of leverage. That and other regulatory advantages over private-sector competition fueled their rapid growth, while their leverage shifted risk to taxpayers, created moral hazard, and incentivized excessive risk taking.
The ability for the FHFA to charter competition would move the financial situation beyond the current duopoly market structure...
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Is it a coincidence the Quicken Loans IPO is scheduled for next month?
Venture to guess who or what they will acquire with all of that new capital?
Now imagine being able to monetize all of data inside the GSE databases with artificial intelligence/machine learning. Its pretty obvious what is about to happen.
I’ve been hearing FNMA and Freddie are done since 2009, yet hear we are and who will replace them and how would you even begin to wind that down?