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Residential mortgage debt may lead to tipping point in GSE takeover

While it’s no surprise that Fannie Mae and Freddie Mac guaranteed the majority of new residential mortgage originated throughout the nation, the government-sponsored enterprises also guaranteed about half of the outstanding residential mortgage debt, the Congressional Budget Office said in its latest post.

The 50-50 split between the private securitization market and government-sponsored enterprises control of outstanding debt may be the tipping point to the GSEs' domination, with only one way for them to go, up. 

The CBO recently projected that Fannie Mae and Freddie Mac will slide from their top spot in the mortgage-guarantee market space as the securitization market stages a comeback.

However, this estimation by the CBO is a bold one, given the fact that both government-sponsored enterprises are thriving in the market more so than ever before.

The return to profitability for both Fannie Mae and Freddie Mac puts a massive clog in the securitization market pipeline, potentially delaying the wind down of the enterprises for a longer period of time. 

Fannie Mae posted its largest annual gain with $17.2 billion of profit as a result of establishing a healthy mortgage book of business. Additionally, Freddie Mac reported net income of $11 billion as a result of the housing market turning a corner and the GSE working to minimize legacy losses.

Thus, the change in fortune for both Fannie Mae and Freddie Mac reiterates the fact that there’s no current structure that exists in the space that could take over the agency-dominated market. 

cmlynski@housingwire.com

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