Posted on 04/16/2013 10:46:18 AM PDT by whitedog57
HUD Secretary Shaun Donovan said Congress and the Administration “should move forward this year with plans for overhauling the U.S. mortgage finance system,” including GSEs Fannie Mae and Freddie Mac, which were “seized by the government in 2008.” Donovan is quoted as saying, “Reform of the failed model of the GSEs, the private gains and socialized losses model, is a top priority and it’s critical that we make progress this year toward that goal.”
There have been rumblings of GSE “reform” for the past several years. But the stock answer has been “But not now.” Fannie Mae’s record profits for 2012 have changed the calculus in Washington DC. NOW Donovan says that a redo should advanced soon.
In fact, numerous proposals about Fannie Mae, Freddie Mac and the FHA are circulating through Congress. And Congressional hearings have been happening.
When reading bills and testimony of GSE/FHA reform, it is important to bear in mind that lenders are the partners of the GSEs and the FHA. While Fannie, Freddie and the FHA currently have about a 90% share of new mortgages (last man standing syndrome), it is important to think about lending concentrations as well.
For example, for the FHA, Wells Fargo is currently the leading FHA lender (in millions) with an 11.8% market share.
On the Ginnie Mae MBS issuance side, Wells Fargo has a 34.7% market share.
On the conforming loan front (Fannie Mae and Freddie Mac), Wells Fargo once again leads with a 26.1% market share.
While Wells Fargo and other lenders do not have the market concentration of Fannie, Freddie and the FHA/Ginnie, it is important to understand that simply killing off Fannie Mae and Freddie Mac could result with mega banks being the “last banks standing.”
Stated differently, if you think big banks are complicated now, imagine what would happen if Fannie and Freddie vanished and the banks had to absorb their business model. We would have to have a term for big banks: too complex to fail.
Just food for thought.
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