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Freddie Mac Is Quietly Helping Out the U.S.'s New Mortgage Kings

By Feux Follets following x   2018 May 7, 5:50am 188 views   3 comments   watch   sfw   quote     share    


Freddie Mac has quietly started extending credit to nonbanks that issue mortgages, a move it says will help the companies maintain access to a crucial stockpile of cash if their home loans go sour.

The new Freddie credit lines, which haven’t been publicly announced, are meant to support nonbanks’ mortgage-servicing operations. That’s the lucrative business of managing a home loan after it’s been issued.

Although banks dominated mortgage lending immediately after the 2008 financial crisis, now they are facing stiff competition from companies such as Quicken Loans, Freedom Mortgage, LoanDepot and Caliber Home Loans. Nonbanks issued nearly half of mortgages sold to Fannie Mae and Freddie in 2016, compared with 8 percent a decade ago.

The industry typically functions like this: A lender makes a mortgage and then Fannie or Freddie packages it with other loans into securities that are sold to third-party investors. The lender continues to make a steady stream of income for collecting monthly payments from borrowers and sending the payments on to the third-party investors.

Things can turn problematic for a mortgage servicer if a borrower defaults. The servicer is still obligated to keep sending monthly payments to the mortgage investors even though it’s no longer collecting any money from the borrower. Eventually, Fannie or Freddie reimburses the servicer. But in the meantime, there can be a serious cash crunch.

Freddie Chief Executive Officer Don Layton said in an interview last week that the credit will fill in gaps not served by the private market and that Freddie’s risk exposure won’t increase, since the company already is vulnerable when one of its servicers goes under. He said Freddie has closed one transaction so far and that it partnered with other lenders on the deal.

Some regulators have said they’re becoming increasingly concerned that nonbanks might fare badly in a downturn.

Last month, authors from the Federal Reserve and the University of California at Berkeley’s Haas School of Business wrote that the nonbank sector “in aggregate appears to have minimal resources to bring to bear in a stress scenario.”

Nancy Wallace, a Berkeley professor and one of the paper’s authors, said nonbanks are undercapitalized and rely too much on borrowed money. Being able to access credit lines from Freddie or Fannie wouldn’t solve that problem, she said.

“Fannie and Freddie should not be in the business of that kind of lending,” Wallace said.

More: https://www.bloomberg.com/news/articles/2018-05-07/freddie-mac-is-quietly-helping-out-the-u-s-s-new-mortgage-kings

#Housing #FreddieMac #HereWeGoAgain

1   APOCALYPSEFUCKisShostikovitch   ignore (30)   2018 May 7, 5:52am   ↑ like (0)   ↓ dislike (0)   quote        

Any problem a nonbank has can be cured by shooting the nonbank in the face.
2   lahossain   ignore (0)   2018 May 9, 11:13am   ↑ like (0)   ↓ dislike (0)   quote        

Haven't most of us known that all along? Fannie and Freddie are squarely in the court of those that benefit from the housing booms and busts.

Anyone would be a fool to believe that their primary objective is to help the small-time homeowner?

BTW, housing ownership levels are down. Pretty sure I don't hear much news about them giving a damn.
3   Aphroman   ignore (2)   2018 May 9, 11:44am   ↑ like (0)   ↓ dislike (0)   quote        

lahossain says
Haven't most of us known that all along? Fannie and Freddie are squarely in the court of those that benefit from the housing booms and busts.

Anyone would be a fool to believe that their primary objective is to help the small-time homeowner?

BTW, housing ownership levels are down. Pretty sure I don't hear much news about them giving a damn.


I’m getting advertisements on my Twitter feed from Freddie Mac wants to loan me cheap money for multi family units

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