How to Get the Government Out of Mortgage Lending

Bloomberg View | December 20, 2016        One of the least discussed challenges of the incoming Trump administration may also be among the most economically consequential: what to do with Fannie Mae and Freddie Mac, the government-controlled entities that own or guarantee about half of all U.S. home mortgages.

Trump's pick for Treasury Secretary, Steven Mnuchin, has said he wants to put housing finance back into private hands. Sensible as the goal may be, the hard part will be getting there.

Fannie and Freddie illustrate how slippery the term "private" can be. The two operated as privately owned corporations for decades, albeit with a congressional mandate to promote access to mortgage credit. They generated ample profits for shareholders and gained a dominant position thanks in large part to the expectation that the government would rescue them in an emergency. That perception proved correct in 2008, and they have been wards of the state ever since.

The failure of Fannie and Freddie has drawn the government far deeper into U.S. housing finance than it ever intended, at a time when even its pre-crisis involvement appears excessive. Subsidized lending may have boosted home ownership, but it also contributed to a consumer-debt burden that has hobbled the recovery and rendered the economy more prone to crisis. Most other advanced-nation governments play a much smaller role, with little apparent effect on home ownership.  Read more here.

 

Fannie, Freddie Replace HAMP with New Foreclosure Prevention Program

HousingWire | December 14, 2016        Fannie Mae and Freddie Mac announced on Wednesday their replacement for the Home Affordable Modification Program. The government sponsored enterprises revealed the Flex Modification foreclosure prevention program, which is designed to help America’s families by offering reductions to their monthly mortgage payments.

The government's Home Affordable Modification Program is slated to end on Dec. 31, 2016, concluding a seven-year government program designed to save struggling homeowners who are behind on their mortgage, or in danger of imminent default due to financial hardship.

HAMP’s sibling, the Home Affordable Refinance Program, which was created at the same time, was extended in August until Sept. 30, 2017 in order to create a smoother transition period for a new refinance product. 

“The new Flex Modification announced by Fannie Mae and Freddie Mac (the Enterprises) today was designed based on lessons learned from crisis-era loan modification programs to help borrowers stay in their homes and avoid foreclosures whenever possible,” the FHFA said in a statement.   Read more here.

 

J.P. Morgan Readies Mortgage-Backed Deal

Deal is J.P. Morgan’s first since the financial crisis involving mortgages entirely owned by the bank

Wall Street Journal | March 14, 2016   J.P. Morgan Chase & Co. is trying to sell new securities that would pass along most of the credit risk on $1.9 billion in mortgages, in an attempt to revive a debt market that has been largely left to the government since the financial crisis.

The largest U.S. bank by assets is expected to price the residential mortgage-backed deal over the next two weeks. J.P. Morgan would hold 90% of the deal by keeping the safest parts, or the most senior tranches, and plans to sell off the riskier pieces to investors.

Banks issued trillions of dollars worth of bonds backed by home loans in the years before the financial crisis but have had trouble winning over investors burned when the market crashed. Financial institutions issued $61.6 billion in private mortgage bonds in 2015, up from $54.1 billion in 2014 but a fraction of the $1.19 trillion issued at the peak of the housing boom in 2005, according to data from trade publication Inside Mortgage Finance.

Government-sponsored entities Fannie Mae and Freddie Mac have dominated the market in their absence. The two companies have recently been selling new securities that use derivatives to unload the risk of default on the mortgages they guarantee.

The new deal is J.P. Morgan’s first “house transaction” since the financial crisis, meaning it is entirely backed by mortgages the bank owns. The pool includes a mix of more than 6,000 mortgages, both newer and refinancings, around 75% of them conforming with the underwriting standards set by Fannie and Freddie. Most of the mortgages are made to individuals with high credit scores.  Read more here.

SBC to Pay $550 Million to Settle U.S. Mortgage Bond Claims

NEW YORK (Reuters) – HSBC Holdings Plc <HSBA.L> is expected to pay $550 million (338.29 million pounds) to resolve a U.S. regulator’s claims the bank made false representations in selling mortgage bonds to Fannie Mae <FNMA.OB> and Freddie Mac <FMCC.OB> before the financial crisis, a person familiar with the matter said Friday.  Read more here.