FedFin has recently completed analyses of two major actions with significant impact on the structure of U.S. housing finance unless or until Congress restructures Fannie Mae and Freddie Mac.
The first FedFin analysis covers the latest GSE risk-share transaction. It led Freddie Mac to announce that it is now a “buy-and-sell,” not buy-and-hold company. In testimony to Congress, FHFA Director Watt said that deals like this will demonstrate how private capital can take a first-loss position ahead of taxpayers, allowing a GSE wind-down. However, as demonstrated in our report, pricing on this transaction – one tranche is above one-month LIBOR by over 1100 bps – shows how difficult it may be consistently to price risk transfers in a way that ensures post-GSE market liquidity and affordability.
Our second analysis assesses new FHFA eligibility standards for non-bank seller-servicers. These firms have indicated they can largely absorb them, but we believe most will have considerable difficulty doing so over time. Akin to the MI industry’s response when similar eligibility standards were proposed for them last year, raising capital and liquidity is likely in practice to be difficult. This may not constrain current non-bank seller-servicer capacity, but it will surely crimp growth and create new opportunity for banks to re-enter this arena.
If you have any questions on these issues or would like to see these analyses, please send e-mail to info@fedfin.com. We are pleased to put you in contact with the relevant FedFin staff expert.