Private Label Woes Aid GSE Business

Fannie Mae's credit guarantee business has benefited from the meltdown in the private-label securities market and two new customers who used to rely mainly on its cross-town competitor Freddie Mac. Fannie issued $62.6 billion in mortgage-backed securities in November, up 65% from the same month in 2006. Freddie issued $34.2 billion in MBS, up only 20% since November 2006.

In recent disclosures, Freddie said its "largest customer" reduced its mortgage sales to Freddie. And ABN Amro Mortgage Group did not renew its commitment to sell a large volume of mortgages to Freddie. Bank of America acquired ABN Amro earlier this year.

ABN Amro accounted for 8% of Freddie's securitization volume during the first six months of 2007. Freddie's largest customer accounted for more than 10% of its securitization volume during the first nine months of this year. A Freddie spokesman declined to discuss the customer's name.

But Home Mortgage Disclosure Act data indicate that Wells Fargo Home Mortgage was the largest seller of loans to Freddie in 2006.

Freddie experienced a temporary surge in MBS issuance in September after the secondary market for subprime and alt-A mortgages seized up.

Freddie issued $54.3 billion in participation certificates that month. But its PC issuance dropped to $31.1 billion in October and rose slightly to $34.2 billion in November.

In November 2006, Freddie issued $28.4 billion in PCs. Meanwhile, MBS issuance by Fannie has risen fairly steadily from $37.8 billion in November 2006 to $58.4 billion in September.

Issuance fell to $49.4 billion in October, before rebounding to $62.6 billion in November.

The two government-sponsored enterprises reported large losses in the third quarter due to rising delinquencies and defaults.

However, Fannie and Freddie executives are convinced the market turmoil has handed them a golden opportunity to dominate the conventional mortgage again.

Fannie president and chief executive Dan Mudd told a Goldman Sachs financial services conference recently that the mortgage market has swung back to his company's strength.

"Our market share of mortgage-related securities has doubled since early 2006, and has gone from 20% back to above 40%," Mr. Mudd said.

"The GSEs are one of few sources of liquidity out there right now."

Freddie chairman and chief executive Richard Syron said its business of guaranteeing MBS is going to be "quite attractive" going forward.

"And I think you can anticipate our emphasizing the G-fee business significantly more than the retained portfolio," he told the Dec. 11 Goldman Sachs conference. Freddie executives expect G-fee revenue will grow at a 10% to 16% rate for several years. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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