Smaller GSEs

MAR 22, 2013 5:16pm ET

WE’RE HEARING lots of small lenders are not looking forward to GSE reform. Especially when the politicians and regulators are talking about winding down the GSEs and replacing Fannie Mae and Freddie Mac with some form of a securitization platform that would be run as a public utility.

Thousands of lenders can sell individual loans to Fannie and Freddie and these small lenders don’t want to lose their access to the secondary market.

They see GSE reform as a way to give the large banks control of the securitization market. 

Without Fannie and Freddie, someone has to pool the loans. It takes large pools and a steady supply of MBS to satisfy investors and achieve good pricing.

Under a proposal by the Bipartisan Housing Commission, only MBS issuers would have access to the securitization platform, which rankles the Independent Community Bankers of America. 

“Virtually all of the GSEs current business from small and mid-sized lenders would be captured by a small number of large issuers who would effectively serve as gatekeepers to the secondary market,” ICBA said in a statement submitted to the Senate Banking Committee last week.

Under the BHC proposal, “community banks and mid-sized banks would be shut out and forced to sell to these mega-banks,” ICBA warned. 

There has been talk about using the 12 Federal Home Loan Banks, which are GSEs, to pool member loans. However, an attempt by the Chicago FHLB to issue MBS in the 1990s was blocked by their federal regulator.

Meanwhile, some lenders are hoping Congress will allow a smaller Fannie and Freddie to continue to pool and securitize loans under the continuing watchful eye of the Federal Housing Finance Agency.

The GSEs have a strong regulator now—something that was missing during the housing boom when Fannie and Freddie tried to compete with Wall Street and ran off the same cliff.

Allowing the smaller GSEs to pursue their trade will keep the TBA market intact and mortgage credit flowing. And the profits they earn can go towards paying off the debt they owe the taxpayers.

BLOG CITY: Our latest What We’re Hearing blogger is John McDermott, who is that rarest of creatures—a lawyer who can write. John’s most recent posting recounts how the sharp-eyed attorney spotted a property that allegedly had a $100 billion lien against it. That’s right, billion with a “b.” His investigation turned up a jail term and some outlandish land claims. John fills out our WWH roster: Ted Cornwell on Mondays, Bonnie Sinnock on Tuesdays, Garth Graham on Wednesdays, John McDermott on Thursdays, and Brian Collins/Mark Fogarty on Friday.

BUBBLE TROUBLE: Our most e-mailed content for the week has been about the housing bubble. Evan Nemeroff’s piece is about a prediction that real estate values will be up to pre-bubble levels by 2017. That would just about match the years of declines, so it looks as if that would not be overheating. But once a bubble begins, watch out! Especially if the industry is full of newbies who weren’t here for the last one (and the one before that, and the one before that).

SHOUT OUT: We’ve been giving shout outs to those companies who are helping the mortgage business out of the doldrums by hiring. Our bright line has been ten net new hires. This week a company is making our list for the second time. That’s Churchill Mortgage, Brentwood, Tenn., that is hiring 16 new people in several locations, including Brentwood, Middle Tennessee, Houston, Dallas and Greenwood, SC. Let’s get back to work!

OH, THOSE VINERS: It’s nice to know that everyone in the mortgage and real estate industries works easily together to provide smooth service for their borrowers and homebuyers. Wait, what alternate universe were we dreaming about? A recent MortgageGrapevine.com thread has a realty agent complaining loudly about banks and finding some Viners who agree with him. As First Amendment buffs we never want to censor anybody but let us warn you there is very salty language in this thread, so if you are easily offended don’t go there!

Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.

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