AMI to Fannie Mae CEO: Private capital is ready for return to mortgages

Association of Mortgage Investors responds to HousingWire report

Contrary to what Fannie Mae’s CEO told HousingWire last week, private capital is ready and willing to return to the mortgage market, the Association of Mortgage Investors said this week.

Last week, in the wake of Fannie Mae reporting a comprehensive income of $936 million for the first quarter of 2016, Fannie Mae CEO Timothy Mayopoulos told HousingWire’s Jacob Gaffney that private capital is “unwilling to step in” to support the mortgage finance system as the government-sponsored enterprises do now.

Mayopoulos went on to say that he doesn’t expect to see a return of the private market to its pre-crisis status.

“I don’t foresee that market coming back,” Mayopoulos said. “Those investors got burned in a big way.”

AMI, which represents private investors, public and private pension funds, and endowments, went so far as to respond to Mayopoulos’ statements directly and claims that Mayopoulos is wrong.

“Private-label capital is a catalyst for the American Dream of home ownership, such as a more affordable and widely-available 30-year fixed mortgage,” said AMI Executive Director Chris Katopis said in a statement.

“We will continue to work with policy-makers on structures, systems, and policies that will bring capital to the U.S. mortgage market and increase access to mortgage credit for credit-worthy borrowers,” Katopis continued.

AMI states that investors were “disappointed” by Mayopoulos’ view of the private market, but agreed that private investors were harmed by the crisis, just as the public was as well.

“AMI members confirm that this was the reality in the pre-crisis market given the ineffectiveness and unenforceability of representations and warranties made to investors about mortgage loans they invested in, just as many consumers had no protections from the big bank-servicers on those same loans,” AMI said of the effect of the housing crisis on private investors.

While AMI said that it recognizes the impact of the crisis, it feels that private capital still has a place in mortgage market and the willingness to participate.

“Private capital has the capacity to lend to borrowers outside of the GSE credit box,” AMI stated.

“This is important because these are the exact borrowers that have few other mortgage option,” AMI continued. “This pool of borrowers includes those who may have undergone financial stress during the crisis, but now are back on their feet and have the ability to repay. Private capital also has the ability to tailor mortgage criteria and loan terms to better fit borrowers, while GSE terms remain more rigid.”

AMI suggests that several steps need to be undertaken for private capital to truly return to the mortgage market. Most notable among those steps is “right-sizing” the GSEs place in the market.

“AMI acknowledges that new standards are necessary for a revived PLS market,” AMI stated.

“Investors are ready and willing to return to take credit risk. The small private-label securities market size is not due to a lack of investor demand,” AMI continued.

“In fact, there is significant private capital ready and available to invest in mortgage credit risk, but this private capital is substantially crowded out by the GSEs. Many of the largest investors are still at bay because private label securitization is a small, relatively illiquid market,” AMI said.

“Right-sizing the GSE footprint would allow for a larger, deeper, and more liquid private label market,” AMI said. “This would have the advantage of helping to shift credit risk away from the government and taxpayers to the degree they continue to backstop the GSEs.”

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