Fallout from the GSE Takeover

It's early in the game, but already industry observers are placing bets on what the Treasury Department's rescue, bailout or takeover of Fannie Mae and Freddie Mac means for the seller/servicers who manage loans for the government-sponsored enterprises.

Wall Street likes the plan, which is clear from the Dow's triple-digit gain once the Treasury plan was announced. (Unless, of course, you own Fannie Mae or Freddie Mac stock, which are currently trading for less than a dollar per share each.)

One fear is that the demise of Fannie Mae and Freddie Mac could lead to an exodus of capital from the mortgage sector, putting further downward pressure on home prices. That scenario could make today's foreclosure crisis look like just a prelude to something worse. On the other hand, some envision government control stabilizing the GSEs and refining their mission, helping to restore confidence in housing finance. They argue that by shoring up confidence in the housing finance sector, Treasury secretary Henry Paulson is actually doing the industry a favor. Lenders and servicers could benefit from lower delivery and guarantee fees if the rescue works. (For more on the potential fallout from the GSE takeover, read the news analysis by Paul Muolo and Brian Collins in the October edition of Mortgage Servicing News, which will be in the mail next week). Secretary Paulson has said that Treasury will review the GSE fee structure with an eye toward supporting housing affordability.

Whatever becomes of the GSEs, it clearly will affect mortgage servicing. Currently, an estimated 48% of outstanding home loans are serviced under the seller/servicer guidelines of Fannie Mae and Freddie Mac. A permanent replacement or restructuring of the GSEs probably won't be undertaken until the next president is in office, but the stakes will be high for the mortgage industry.