Fannie Mae [1] and Freddie Mac [2] should take on more risk-sharing transactions, according to a vast majority of survey respondents in the March 2015 Mortgage Industry Outlook Report [3] released Monday by The Collingwood Group [4] and The Five Star Institute [5].
According to the survey, 85 percent of respondents said the GSEs should be involved in more risk-sharing transactions because such transactions allow private market participants to invest in the credit performance of the GSEs' book of business, thus keeping the private securitization market involved and ultimately limiting taxpayer risk while Fannie Mae and Freddie Mac remain under conservatorship of the FHFA. Fifteen percent of survey respondents said they believed Fannie Mae and Freddie Mac should not engage in more risk-sharing transactions.
"Risk-sharing transactions will 'de-risk' the government's exposure while allowing private capital to serve the housing sector," one survey participant wrote. Â "It will allow innovation to come back into the mortgage space."
The subject of the GSEs remaining under conservatorship of the FHFA remains a contentious one among the stakeholders in the housing industry. The majority of survey respondents (36 percent) listed "private capital abandoning the space" as the No. 1 risk associated with leaving things "as-is" as far as the FHFA's conservatorship of Fannie Mae and Freddie Mac. Second on the list was "no risk" at 23 percent, followed by "another housing crisis" at 15 percent.
"Even with historically high guarantee fees and loan level price adjustments, Fannie Mae and Freddie Mac's pricing is more aggressive than pure private sources because of government guarantee and the temporary QM exemption," the Collingwood Group wrote in the survey. "With so few purely private transactions in the marketplace today, it is difficult to accurately price the credit risk. Respondents reported that 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 of the survey respondents suggested combining the two GSEs into a single entity or moving into a single security, but according to another of the survey's questions regarding how likely it is that GSE reform will take place under the Obama Administration, 60 percent of respondents said there was "zero chance" of that happening, citing the fact that the steady profits the GSEs are returning to Treasury gives the administration no incentive to change anything with regards to housing finance. About 34 percent of respondents said there was less than 25 percent of a chance that GSE reform will take place while Obama is president. Only 6 percent of respondents said they believe there is a greater than 25 percent chance that GSE reform will take place under Obama's watch.
"An unanticipated market disruption or a draw request from a GSE to the Treasury would likely be needed as a catalyst to achieve reform in this administration," one survey respondent wrote.
On the question of what the most important thing the new Congress can do to improve housing, 27 percent of respondents said "Repeal Dodd-Frank" and 22 percent said "abolish the Consumer Financial Protection Bureau," indicating that survey participants would like to see a more "tempered approach with reasonable modifications to these two reactionary reform measures stemming from the crisis." At the same time, Collingwood reported that survey respondents were "pragmatic" about the abolishment of the CFPB and instead said they would like to see reform in the form of more accountability and Congressional oversight for the Bureau.
The Collingwood Group conducted the survey in partnership with The Five Star Institute. A diverse group of mortgage industry leaders was polled, with the largest percentage of those surveyed coming from lending or originating (37 percent), followed by service providers and industry vendors (19 percent) and consultants/advisors/attorneys (16 percent).