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Investments

Did we forget Fannie and Freddie are mortgage bond dealers?

GSE reform needs to consider mortgage finance more

March 12, 2014
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The primary role of Fannie Mae and Freddie Mac is to issue mortgage bonds.

We seem to have forgotten that.

Yes, the government-sponsored enterprises became used as tools of housing policy, but let's not confuse that with mortgage finance.

But confused I think we are.

The reason I bring this up is that after reviewing what little information is available on the Johnson-Crapo bill coming soon in the Senate, the most glaring omission is information of how the mortgage bond markets will operate after winding down the government-sponsored enterprises.

Oh, there is down payment guidance. And there are private insurance investment standards there, as well. It earned the support of trade groups, but has investors worried. Why?

What hardly gets a mention, and to me is the most glaring, is how the To-Be-Announced market will function in the absence of the two bond dealers that fill this highly liquid $10 trillion space.

What's happening here is a reinforcement of the need to stop using secondary mortgage market issuers as tools for housing policy.

This is likely why the Johnson-Crapo bill calls for an elimination of affordable housing goals. If this works, the multifamily asset class introduction into risk-sharing deals would increase financing for renters.

Compass Point earlier gave the Johnson-Crapo bill a less than 5% shot of becoming law.

Rep. Maxine Waters applauded the bipartisan support, but also give it an even lower chance.

"Without a reasonable proposal that can be supported by a broader coalition of the House, housing finance reform is going nowhere this year," Waters said in an email.

It's just as well; TBA investors still need better answers.

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