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Collingwood Survey: Will Private Mortgage Capital Dry Up?

Mar 03, 2015

Can’t live with them, can’t live without them. That sums up the sentiment of leading mortgage and housing industry professionals when it comes to Fannie Mae and Freddie Mac, in the latest Collingwood Group Mortgage Industry Outlook ReportEach month, The Collingwood Group, a Washington, D.C.-based business advisory firm, in partnership with The Five Star Institute, surveys top mortgage industry leaders in an effort to assess the state of their businesses, current events in the industry, and what it all means for home buyers and sellers. 

In the March survey, mortgage industry professionals say Fannie Mae and Freddie Mac should be initiating more risk sharing transactions to spur the private securitization market, and they are worried that keeping Fannie and Freddie in conservatorship is causing private capital to abandon the mortgage lending space. 

But, they say it is highly unlikely that GSE reform will occur during the Obama Administration. Ninety-four percent of survey respondents indicate that housing finance reform is not a priority for the White House and as long as Fannie Mae and Freddie Mac are returning steady profits to the Treasury, there will be no incentive to reform them.  As a result, Collingwood does not expect GSE reform to occur until well after 2017.

The biggest risk associated with keeping Fannie Mae and Freddie Mac as-is, according to survey respondents, is private capital abandoning the space.  

In contrast, others indicated that the biggest risk is the government using the GSEs as a political instrument or as a piggy bank used to fund budget shortfalls.

Respondents say it is important to have sufficient reserve capital and/or private mortgage insurance in place to protect taxpayers from the next business cycle downturn. Some suggested combining Fannie Mae and Freddie Mac into a single entity or moving to a single security.

The vast majority (85 percent) of survey respondents agree that Fannie Mae and Freddie Mac should be doing more risk sharing transactions. These transactions allow private market participants to invest in the credit performance of Fannie Mae and Freddie Mac’s single-family book of business. Most survey respondents indicated that they support these transactions because they help fuel the private securitization market and limit taxpayer risk while the GSEs are in conservatorship.

As for what Congress can do to improve the housing market, fewer than 50% of respondents selected “Repeal Dodd-Frank” or “Abolish the CFPB.” Instead, the comments submitted clearly indicate that these industry insiders prefer a tempered approach with reasonable modifications to these two reactionary reform measures stemming from the financial crisis. Many respondents stated that the Dodd-Frank Act should be revised to remove barriers to innovation and to reduce the cost of manufacturing a mortgage.

Similarly, respondents were pragmatic about the unlikely prospect of shuttering the CFPB and instead suggested that Congress consider amending the structure of the CFPB so that there is more oversight and accountability.  Respondents also stated that at a minimum, the CFPB should provide greater transparency in the exam process and in the results of an exam.

Data for the survey was gathered from Feb. 10-19, 2015. Online questionnaires were distributed via e-mail to approximately 46,400 mortgage industry professionals; including lenders, originators and servicers. Questionnaires were also shared via real estate groups on social media. As of Feb. 19, 2015, 132 people responded.

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