Lunch & Learn: The State of Housing

As housing supply dwindles, affordability concerns grow while competition heats up the market. This Lunch & Learn will examine the current state of housing, featuring experts who have an eye on the market.

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How credit scores impact lenders’ pipelines in a purchase market

When a lender works with a borrower to improve their credit score, they are able to offer the most competitive rate and terms. Learn more here!

Volly’s Grant Moon on challenges facing veterans

In this episode of HousingNews, we are joined by Grant Moon who discusses the difficulties veterans face during the home-buying process and misconceptions about VA loans.

Mortgage

Credit risk transfers are key to GSEs’ exit strategy

But moves by FHFA Director Calabria and a possible Supreme Court ruling cloud the market's future

Washington D.C

We all know the story. Amidst a widespread and imprudent weakening of credit standards and a complete failure by the credit rating agencies to properly assess risk, the housing finance market imploded in 2008. Probably the biggest wipeout was in the then privately owned mortgage securitizers, the GSEs, where every one of their mortgage-backed securities carried an implicit federal guarantee.

Fast forward to 2020 and a lot has changed at the government sponsored enterprises. About $7 trillion of MBSs that the two have underwritten and that are outstanding still carry the government’s guarantee stamp, which creates huge savings for homeowners whose mortgages qualify for inclusion in GSE securitized MBS pools.

But the credit guarantee is more explicit now than implicit because the GSEs are no longer privately owned, but instead are effectively owned by the federal government through a conservatorship arrangement overseen by the Federal Housing Finance Agency, created in 2008.

Post-2008, a few politicians, perhaps the U.S. Treasury, some regulators and very few people at Freddie or Fannie like the conservatorship arrangement. Simply removing the federal guarantee stamp hasn’t proven possible politically – neither side of the aisle wants irate voters whose mortgage costs have skyrocketed. But pretty much no one likes the nearly $7 trillion of taxpayer funded credit risk assumption either.

Enter credit risk transfers. First issued by Freddie Mac in 2013 and followed quickly by Fannie Mae, CRTs do exactly what they say they do: they transfer credit risk away from the GSEs, and the federal government, to the private sector purchasers of CRTs who are, of course, compensated for taking on GSE MBS credit risk.

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