Everyday, I try to search the web for some useful information that I feel will make my audience smart to the mortgage industry. I always feel that a smarter boworrer is a stronger bowerer. So with that in mind, I found this article on CNBC and thought I would share it with you.
Published: Friday, 11 Feb 2011 | 3:44 PM ET By: Reuters
The Obama administration declared the death of the existing U.S. housing finance system on Friday, setting in motion an uncertain project that will take years and reshape the way Americans buy and own homes.
Following is a rundown of who stands to be the biggest winners and losers from the administration’s plan to wind down government-controlled mortgage buyers Fannie Mae and Freddie Mac:
The Winners
— Big banks that are willing to invest in mortgages
The proposed reforms will likely help the bank industry, especially larger firms, by allowing them to raise the prices that they charge consumers for mortgages, analyst Paul Miller of FBR Capital Markets said.
— Mortgage securitizers
Wall Street firms have said record low interest rates and government competition have been a major factor keeping them out of the mortgage credit market. But reducing the government’s role can be a “game changer,” Martin Hughes, chief executive officer of Redwood Trust, said at a securitization conference this week.
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“Why isn’t the private sector up and running? It really is uber-government support for mortgage financing,” said Hughes, whose real estate investment trust profits by taking on the riskier parts of private securitizations.
Wall Street investment firms have been rebuilding mortgage finance desks since 2009. Other non-bank entities such as PennyMac Mortgage Investment Trust asset manager BlackRock and private equity firm WL Ross & Co. have laid foundations for private lending in recent months.
But after the housing crisis, many investors are still reluctant to load up on mortgage-backed securities that don’t have a government guarantee linked to them. It could take years for faith in securitization to return to prior levels.
— Mortgage insurers
Private mortgage insurance backstops home loans where the buyers make a down payment smaller than 20 percent of the purchase price. Buyers pay for it but the insurance protects the lender’s interests.
Insurers collectively face potential claims on hundreds of thousands of delinquent mortgages from the last few years, but could be reinvigorated if they get the opportunity to write large amounts of new business in years to come.
The end of Fannie and Freddie is expected to bolster top industry players MGIC Investment, Radian Group, PMI Group and Genworth Financial. Shares of all four surged on Friday.
The Losers
— Homebuyers
The biggest losers in the Obama administration’s reform proposals will inevitably be people seeking to buy a home, or people that own homes.
Treasury Secretary Timothy Geithner conceded on Friday that mortgage costs will rise in coming years, as government support is withdrawn and the private sector takes on a bigger role.
The ultimate shape of the reforms is far from clear, however, and no one is able to say exactly how the changes will translate into bottom-line costs for homebuyers.
Credit Suisse speculated this week that rates on a basic 30-year fixed mortgage could rise as much as 2 percentage points if the government withdrew its backing of Fannie Mae and Freddie Mac.
Higher mortgage rates could make homes less affordable for buyers, and could also weigh on home prices, hurting sellers.
— Banks that sell mortgages to investors rather than holding them
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Smaller banks that have traditionally sold most of their mortgages to Fannie and Freddie have less ability to hold large mortgage portfolios on their balance sheets, and are more likely to suffer from the proposals, FBR’s Miller said.
Banks that operate as agents and have traditionally sold most of their mortgages to the GSEs or private investors, such as Bank of America are also expected to have to adjust their business models as a result of the proposals.
— Wall Street
In the near term, Fannie and Freddie’s demise could hurt the Wall Street firms that help sell their bonds and hedge their interest-rate risk. As two of the most regular issuers in the country, the government-sponsored enterprises were a steady source of fees for a roster of major investment banks.
In the long-term, these issues could be more than offset by the banks’ profits from securitization and higher mortgage rates, which is why many big banks for years have been lobbying for the government to decrease its support for Fannie Mae and Freddie Mac.
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