Remember when Spencer Bachus said that Fannie Mae and Freddie Mac should be in liquidation, not conservatorship?
The issue was discussed during a general session at the American Securitization Forum.
Yeah… About that… Well, the GSEs ain't going anywhere. Here are just a few reasons:
- Home prices are increasing.
- Negative equity positions are declining.
- Foreclosure rates are slowing.
- Investment funds pining for more supply to fulfill REO-to-Rental targets.
- Private-label securitization is slowing increasing.
- The banks and GSEs are making nice again (see: BoA / Fannie settlement), though there's still a ways to go.
- The recent CFPB release includes a specific 8-year plan for the role of Fannie Mae and Freddie Mac in the US housing market.
Most importantly… The GSEs are profitable now.
So what exactly is the problem? Nothing, unless you care how much the government is involved with the housing market. If you're looking for re privatization of the mortgage market, with FHA dropping back to a 10-15% market share, there are a few promising signs.
- FHFA mortgage guarantee fees ("g-fees") are increasing over time.
- Community banks are retaining more loans on their books. According to CUNA's November 2012 report, residential first mortgages comprised more than 20% of their total lending portfolio. By 2005, that figure dropped to 9.8%. As of November 2012, that number inched upwards to 10.8%. Not an enormous change, but certainly moving off of its historical lows.
- Fannie Mae & Freddie Mac are moving out on the risk curve, causing FHA to move out on the risk curve opening opportunities for the private market.
- Pent up household demand. We have a cohort of 20s & 30-somethings that have been renting since leaving college during and after the housing crash.
- Increasing household formation.
In the end, even the activity trends pushing mortgages back to the private market won't overcome the overwhelming effects keeping the GSEs right where they are.
Scott Sambucci works with CoreLogic Advisroy Services, the opinions expressed here are his own.