February 21, 2012 7:34 pm

Mortgage plan seeks single securities platform

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The US may create a public utility to process all mortgage securitisations in the future after the main regulator of housing finance said it wants to invest in a single platform.

In a strategic plan published on Tuesday, the Federal Housing Finance Agency said that it aims to build a single securitisation platform for Fannie Mae and Freddie Mac, the two housing finance agencies that guarantee and bundle most US mortgages.

The plan points to a revolutionary future for the $8,500bn US mortgage-backed securities market, in which all public and private issuers use a single platform to process and track payments from mortgage borrowers through to MBS investors, and Fannie and Freddie may no longer exist.

“Right now, Fannie and Freddie each have their own proprietary systems,” said Edward DeMarco, acting director of the FHFA. He said it made little sense for taxpayers to keep investing in two different platforms when they could instead build a single system that could be used regardless of whether Congress keeps Fannie and Freddie or scraps them.

“It’s about building out an infrastructure for the secondary mortgage market but doing so in a way that is not dependent on any particular policy path,” said Mr DeMarco. In the medium-term, such an infrastructure could mean a single agency MBS, instead of different Fannie and Freddie securities.

The FHFA is the government conservator that has overseen Fannie and Freddie since they were bailed out during the financial crisis. It said that their “losses are of such magnitude that the companies cannot repay taxpayers in any foreseeable scenario”.

In depth

Freddie and Fannie

headquarters of mortgage lender Freddie Mac

The role of the state-backed US mortgage originators has come under the microscope

Politicians across the spectrum in the US want to scale back the government’s role in guaranteeing mortgages but Congress has not yet decided whether to keep Fannie and Freddie or scrap them. The FHFA’s plan also sets out how it will shrink the agencies over the next few years while trying to minimise foreclosures.

The plan sets out three options to reduce the influence of Fannie and Freddie on the mortgage market: increasing the price of their guarantee fees, setting up loss-sharing with private investors on securities that they guarantee and requiring more mortgage insurance on loans that they buy. Congress has already passed a 10 basis point increase in guarantee fees.

“We want to gradually shift some of the mortgage credit risk that Fannie and Freddie are taking on today back to the private market,” said Mr DeMarco.

The FHFA also said that it will look again at short sales, deeds-in-lieu, and deeds-for-lease as options to avert foreclosures. All are ways in which a homeowner can walk away from a mortgage without a lengthy and potentially costly foreclosure process.

“We want to take a fresh look at how they are actually working in the marketplace,” said Mr DeMarco.

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