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FHFA leader discusses future mortgage market

DeMarco: Expect g-fee hikes, lower conforming loan limits

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Federal Housing Finance Agency Acting Director Ed DeMarco argued for a gradual reduction of Fannie Mae and Freddie Mac's dominance in the housing space Thursday.

At the same time, the FHFA leader argued once again for a housing finance system supported largely by private capital.

Speaking at a Bipartisan Policy Center housing conference, DeMarco identified three strategies for achieving these goals. With the market still uncertain about the enterprises' role in the future of housing, DeMarco said the conservator will continue issuing risk-sharing transactions. 

Earlier this year, FHFA set a target for each GSE to achieve $30 billion in risk-sharing deals using multiple structures.

Freddie Mac was the first to complete such a transaction, which was well received in the market. As a result, the enterprise expects to complete another one in the near future.

Similarly, Fannie Mae recently completed a deal with a mortgage insurer while also finalizing a securitized-based transaction similar to sister agency, Freddie Mac.

"Going forward, I expect to see work done on other types of transactions such as senior/subordinated structures for certain portions of the enterprises’ mortgage guarantees," DeMarco stated.

Additionally, guarantee fees will continue to gradually increase in the near future, bringing pricing for credit risk closer to what would be required by private sector providers.

Currently, g-fees on mortgages average about 50 basis points – double what they were prior to conservatorship.

More importantly, FHFA expects to announce the reduction of conforming loan limits in late November, providing information on potential reductions in the size of loans the GSEs will guarantee going forward.

However, DeMarco made it clear that FHFA will give market participants at least six months notice of any change — meaning the earliest possible date for a reduction in conforming loan limits would hit in the spring of 2014, but that's contingent on whether the agency believes it should take longer. 

"Any reduction would be across the board, not just in some parts of the country," DeMarco said.

He concluded, "And, consistent with our practice when increasing guarantee fees, any change would be measured and gradual so as not to disrupt markets."

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