Wholesale Exit by Banks Could Lead to Higher GSE Net Worth Minimums

Many large commercial banks have exited the residential wholesale lending arena the past two years, foam dripping from their mouths, and screaming something about “risk.” The latest entry to the exit parade is Grand Bank N.A. of New Jersey. Of course, there is some good news in the stampede: as Wells Fargo, JPMorgan Chase, Citigroup and others bolt the sector mid-sized banks and nonbanks alike are moving in. But there is also a growing fear that the capacity problem caused by these exits is forcing Fannie Mae and Freddie Mac to ponder raising their minimum capital requirements. In other words, as “the little guys” attempt to go direct to the GSEs, Fannie and Freddie are starting to ponder: who are these new players? (See the Monday paper edition of National Mortgage News for more details.)