When it comes to the securitization market for residential loans, hope springs eternal that some day the private sector will take a large bite out of the government-controlled MBS market.
In fact, the federal government would love for this to happen because it would mean that taxpayers, potentially, would no longer be on the hook for another housing depression.
But the way things stand right now—and for the foreseeable future—Fannie Mae, Freddie Mac and the Government National Mortgage Association (GNMA) continue to provide most of the liquidity for nearly every single loan originated today.
According to figures compiled by National Mortgage News and the Quarterly Data Report, Fannie continued its dominance of the secondary market in the first quarter, buying 54% of newly originated loans. Freddie Mac was a distant second (30% market share) with the Government National Mortgage Association, representing the balance (24%).
The totals don’t quite add up to 100% of the $353 billion funded in the first quarter—mainly because securitization issuance can lag actual loan production by several months, especially with closings dragging on for months on end. Also, some securitizations involve seasoned product or multifamily loans.
For all of 2010 the market share numbers weren’t much different.
Over the past year the private sector has been itching to grab a piece of the secondary market, hoping that a revival of the jumbo MBS business might also lead to a true private market for “GSE-like” loans backed by private guarantors.
Of course, the jumbo MBS market has struggled mightily, thanks, in part, to declining home values (even wealthy Americans are not immune to price declines) and the fact that depositories of all sizes would rather balance-sheet their nonconforming whole loans because the profit margins on this “carry trade” are so wide.
The hoarding of whole loans hasn’t stopped firms such as PIMCO, and even MBS godfather Lew Ranieri from toying with the idea of entering the jumbo conduit space. At this point, though, it’s been all talk—and no deals—with only Redwood Trust of California issuing any jumbo bonds over the past two years.
Meanwhile, it might be argued that home prices are shaped by the GSE loan limit, which is set to fall to $625,000 in September from $729,750. If there is no government-sponsored secondary market for larger loans, chances are mortgage money will be more expensive in the primary market.
Fannie and Freddie (and GNMA) are government-controlled assets. September will mark the three-year anniversary since the Treasury Department and Federal Housing Finance Agency seized controlled of the two GSEs, making them wards of Uncle Sam.
It may be hard to fathom, but prior to the housing/mortgage crash, Fannie and Freddie were actually losing share to Wall Street. In 2005 the GSEs had a combined market share (as a percentage of originations) of just 36%. Today the share is 84%.
The Street was able to capture share by providing liquidity to subprime lenders and then issuing bonds backed by those loans, a strategy that eventually tanked the economy.
The so-called winner in this economic apocalypse continues to be Ginnie Mae which today boasts a market share of 24%—and huge profits. In 2005 its share was a meager 3.4%. Who says socialism doesn’t work?
