Could Freddie and Fannie soon have competition?
The first thing I realized when I landed in Austin for this year’s annual Mortgage Bankers convention was horrifying levels of homelessness can be found just as easily where the median home price is $381,500 (according to Zillow) as in high-priced Los Angeles, where the median is $696,900.
As for the convention, the most important takeaway is that Dr. Mark Calabria, the recently installed director of the Federal Housing Finance Agency (Fannie Mae’s and Freddie Mac’s regulator and conservator) gave a speech in which he laid out a plan focused on getting Fannie and Freddie released from 11 years of government conservatorship.
Fannie Mae and Freddie Mac are critically important for providing mortgage liquidity for homebuyers and refinancers. They own or guarantee $5.6 trillion in single- and multi-family mortgages — nearly half the market, according to Calabria.
Remember, when trouble was brewing during the mortgage crisis a decade ago most of the big lenders ran for the hills and severely curtailed their lending (when consumers were most desperate for money).
It’s critical to have a consistent, reliable source of mortgage capital.
Calabria is a big believer in competition. He’s already asked Congress for the ability to charter additional competitors to Fan and Fred.
I will bet he is becoming like a pebble in the shoes of F & F as he’s created a new strategic plan and scorecard to hold the enterprises accountable. Yes, accountable!
In a post-speech press conference, Calabria said he didn’t want to be reliant on Fan and Fred’s “analytics and data.” I thought a prudential regulator and conservator should have thought this way all along.
Calabria put an end to the mortgage giants giving volume-based guarantee fee discounts (price discounts) to the bigger lenders at not only the competitive disadvantage of smaller lenders but also their very survival.
Consider Fannie Mae’s options. Sooner or later Fannie Mae will not only be recapitalized but allowed out of mortgage purgatory, assuming it adheres to FHFA’s strategic plan and scorecard.
As a government-sponsored enterprise, Fannie is under Calabria’s thumb. No more sweetheart discounting in exchange for volume loan sales. It faces an end to the duopoly that Fan and Fred have enjoyed for nearly 60 years with perhaps other entrants being granted government charters.
Going back to the 2019 Strategic Plan, competition between Fan and Fred during conservatorship must be limited to protect taxpayers, borrowers and underserved communities. Yet, convention exhibitor LogMeIn was demonstrating a voice-activated tool named Ask Poly that is exclusive to Fannie Mae. The tool answers Fannie Mae mortgage questions for loan processors and mortgage loan originators to save the underwriters’ valuable time.
“It’s Siri on steroids,” said Lorie Lagareso, director of solution consulting at LogMeIn. “Poly consulted on over 1 million questions in the last year.”
Does Freddie have this? According to Lagareso, Fannie Mae signed a contract on condition that LogMeIn not offer this to Freddie. Fannie did not respond after repeated inquiries about this relationship.
Fannie Mae has a motherlode of valuable data, a robust underwriting engine named Desktop Underwriter, and a robust library of appraisal data in its Collateral Underwriter platform. And now it has this powerful tool, possibly giving consumers an opportunity to ask clarifying questions in the application process. Fannie could disintermediate loan officers through this technology as well as current lender customers who sell loans to Fannie.
However, to go consumer-direct, Fannie would have to give up its government-sponsored enterprise charter.
More on what I learned at the MBA convention next week.