While Fannie Mae and Freddie Mac remained trapped in federal conservatorships, the two still dominate the mortgage market and little has been done to revive private lending. But that could be changing.
The Federal Housing Finance Agency (FHFA) wants to work with the two government-sponsored enterprises to create a common platform that’s capable of securitizing government loans and private mortgages.
The platform would theoretically provide similar execution for Fannie, Freddie and private-label mortgage-backed securities. MBS issuers would adhere to same pooling and servicing agreements—and the same data reporting requirements and disclosures.
“It’s all about giving the investor a uniform and more transparent platform where they can compare more easily private-label MBS and government-guaranteed MBS,” said Ralph Mazzeo, a partner at the Dechert law firm in Philadelphia.
If successful, this securitization platform could increase investor demand for private mortgages and roll back the GSEs’ market share. The FHFA has provided a brief discussion about this common platform in its “strategic plan” for overseeing the two.
The GSE regulator recently issued an update of that strategic plan and is accepting public comments on the common platform until Dec. 3.
“I like the fact that FHFA is thinking about the role of the private market in housing reform and thinking about getting the private market restarted,” Mazzeo said. “That is a positive development and I expect FHFA will get a lot of interesting comments.”
One reason FHFA acting director Edward DeMarco is moving in this direction is that Congress and the Obama administration have been deadlocked over GSE reform for three years. Many proposals have been floated that discuss the need for a robust private-label MBS market, but don’t provide a road map on how to get there.
The FHFA’s strategic plan recognizes that Fannie and Freddie are going to be around for a while, according to Robert Zimmer, a principal at TVDC, a financial consulting firm.
The Washington lobbyist (and former Freddie executive) noted that the only way to reduce the GSEs’ dominance is to raise their guarantee fees and provide a secondary market execution for private securitizations. And FHFA’s concept provides a bridge to that goal. “It is more of a technician’s view of how to diversify risk in the mortgage market, than a political solution,” Zimmer said.
Building a platform that can handle a variety of MBS where some are credit-enhanced through government backing and others are guaranteed by private bond or mortgage insurers will not be easy.
“It’s never been done before,” said David Stevens, the president and chief executive of the Mortgage Bankers Association (MBA). But Stevens said he is “intrigued” by FHFA’s concept. “It can clearly help with the transition to a securitization platform where lenders are not solely dependent on Fannie and Freddie,” he said.
At the same time, the MBA wants to ensure this common platform or “utility” is accessible to all parties and independent of Fannie and Freddie.
At this point, the FHFA needs to produce a “much more specific plan,” Stevens said, one that indicates how the platform would work and be used.
A detailed blueprint would allow industry experts to get “actively involved” in the process of designing the securitization platform, the MBA chief executive told National Mortgage News.