New Role for Fannie, Freddie?

Mortgage giants Fannie Mae and Freddie Mac may soon have a new mission, according to a report published by _""The Wall Street Journal"":http://online.wsj.com/article_email/SB123837208039067699-lMyQjAxMDI5MzM4MDMzNzAyWj.html_ on Monday. The GSEs' conservator, the Federal Housing Finance Agency (FHFA), is considering extending the role of the two enterprises to include financing for smaller mortgage banks.
These non-thrift finance companies have felt the pinch of the credit crunch lately, making it hard for them to compete with the larger deposit-taking, national lenders - like Bank of America and Wells Fargo - who have secured significant shares of the mortgage market with their recent acquisitions and who rely on their own capital rather than warehouse lines of credit for real estate financing. According to the _Journal_, mortgage bankers argue that borrowers will face higher interest rates and slower service if mortgage banks can't get enough credit to compete with the major lenders.
Typically, these smaller mortgage banks sell the loans they make to bigger banks or to market investors such as Fannie Mae and Freddie Mac to recoup the money they need to pay back the warehouse lenders - often Wall Street investment banks or major mortgage lenders. But now, as these mortgage bankers are becoming part of the body of small businesses having difficulty procuring short-term credit for operations, government agencies - including the Treasury and the Federal Reserve - are calling for the GSEs to step up and provide them with financing.
According to the _Journal_, Warehouse Lending Project, a group of mortgage bankers seeking to revive the warehouse lending market, estimates overall money available for warehouse loans has dropped nearly 90 percent since 2006, to about $25 billion. And according to the Mortgage Bankers Association (MBA), in 2007 there were approximately 90 warehouse lenders; today there are only about 10.
FHFA has asked mortgage bank advocates, include MBA, to submit proposals outlining ways Fannie Mae and Freddie Mac can help revive the warehouse credit market and unfreeze credit to mortgage bankers. John Courson, MBA's CEO, told the _Journal _that he would have a plan ready by next week, and that it may involve Fannie and Freddie guaranteeing debt issued by warehouse lenders.
MBA sent a ""letter to bank regulators"":http://www.mortgagebankers.org/files/News/InternalResource/68246_MBARequestforRBCRuleChange.pdf on March 24th, expressing its concern over the ""bottleneck"" in funding channels for real estate financing. The MBA has asked the Federal Reserve, FDIC, the Office of Comptroller of the Currency (OCC), and Office of Thrift Supervision (OTS) to re-examine the current risk weightings for warehouse lines of credit backed by Fannie Mae, Freddie Mac, or Ginnie Mae eligible loans and related servicing advances. MBA's proposal does not extend to other single-family mortgage loan types such as non-agency subprime or Alt-A loans.