A new report released by the Aite Group examines the home loan market from the perspective of regulated financial institutions—namely banks and credit unions. It analyzes the value proposition of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, explores the existing home mortgage portfolio and bond market, considers alternatives to existing structural and regulatory environments, and presents recommendations to lenders and vendors alike.
The report highlights the fact that the U.S. residential real estate market is fragile, with single-family home sales stagnating, home prices spiraling downward, and the extraordinary number of mortgage defaults producing uncertainty and wariness among lenders, regulators, and legislators. Added to all of this, continued uncertainty concerning the survival of Fannie Mae and Freddie Mac, the two leading outlets for residential real-estate loans, seems to have quashed hope for a thriving home market in the near term. Without Fannie and Freddie, the country’s 16,000 banks and credit unions would be hard pressed to find sufficient capital to provide mortgages, maintain mortgages internally, and remain compliant with capital risk mandates.
“The business of lending funds to consumers for the purchase of a home is a large component of the core business of banking,” said Christine Pratt, senior analyst with Aite Group and co-author of this report. “While the home mortgage market does not show any signs of improvement, banks, credit unions, and the government are focused on immediate issues with no clear big-picture strategy. In a world in which contingency planning and disaster recovery are mandated for technology solutions, it seems that something of that nature is no less important for non-technology-oriented, mission-critical solutions.”