St Louis Mortgage Lending and Refinancing Loan: Mixed Reviews On Revised Housing Plan

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St Louis Finance Lending and Mortgage Loan News: Reaction To Housing Plan By Obama Administration Mixed
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The Obama administration's reform plan for the government-sponsored enterprises, Fannie Mae and Freddie Mac, has drawn some praise and some criticism from the mortgage financial market as well as some ho-hums according to the St Louis mortgage lending community.

Among the concepts: "We are gratified to see that one of the concepts they articulate closely tracks MBA's proposal, released 18 months ago, that visualizes a workable, commonsense

system driven by private capital," said Michael Berman, chairman of the Mortgage Bankers Association.

Berman continues: "Our proposal envisions an explicit, but limited, government guarantee of lower-risk mortgage-backed securities. The guarantee would be paid for by fees used to build a fund to protect taxpayers. We continue to believe that this is the most prudent approach, one that places the primary risk on private investors and ensures sufficient liquidity during times of economic stress in order to provide affordable mortgage finance in all types of mortgage market."

The problem, critics say, is that there is little private-market residential mortgage-backed securities left after the Great Recession to fill any gap a GSE pull-back would obviously leave for the housing market.

In its efforts to free Fannie and Freddie of its government lifeline, some say credit may be restricted further.

Before the current economic turmoil, private-label RMBS made up more than 50 percent of mortgage financing for originations, which represented a $1.3 trillion market. But it is now less than 5 percent of total originations.

"The GSEs are the only bid for secondary market in loans," said one anonymous bank analyst.

"Virtually all bank production today is being written for Fannie/Freddie/FHA guarantees. The guarantee fees are less than half the market rate, whatever that is. So talk about privatization is childish."

Jim Vogel of FTN Financial argues that the government will be looking for ways to revamp its relationship with the GSEs before finding a new model altogether.

Vogel says: "Fannie, Freddie and its regulator are charged with looking for every opportunity to reduce their footprint in the housing market with higher fees, smaller loan sizes, starting in the fall, and faster reductions in portfolio assets when it doesn't disturb MBS prices."

He then went on to say that "this will happen before there is a new plan to replace the GSEs."

Creating a new agency from scratch to ensure a fraction of mortgage securities is a horrifying idea, says economist Arnold Kling, former Freddie Mac economist and member of the Mercatus Center's Financial Markets Working Group.

“It sounds like something that a graduate school class in public policy dreamed up, and shows the lack of business experience in the administration,” Kling said.

He goes on to say that “the best approach to GSE reform would be to phase out the GSEs over a period of three to five years, and to allow alternative channels of mortgage finance to evolve.”

He concludes: “This GSE phase-out would help to avoid a resurgence of a financial system that became both overly concentrated and overly enmeshed in political cronyism.”

Freddie Mac CEO Charles Haldeman Jr. disagreed wholeheartedly with Kling and said that the report should lead to commendation for the Obama administration and not condemnation.

"Clearly they understand the key issues and the need for private sector capital to return to the housing market," he said.

"We at Freddie Mac will continue enhancing our infrastructure, business processes and technology to become the kind of stronger, more efficient company that can play a productive role no matter what policymakers decide about our future."

The government entity that oversees the GSEs, the Federal Housing Finance Agency, said that the reform plan will get its full support.

The GSEs control on the mortgage finance market must be broken, it said, and it is already working toward that goal.

"We have already initiated programs to standardize mortgage data submissions and consider servicing compensation reforms," said FHFA acting director Edward J. DeMarco.

He adds: "FHFA looks forward to working with the administration and Congress to restore the functioning of private markets and preserve the stability and liquidity of the secondary mortgage market."

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