GSEs Testing Program to Aid Independent Mortgage Bankers
According to information published in The Wall Street Journal, Freddie Mac and Fannie Mae are preparing to step up and help some of their affiliates in the current credit crunch.
The two government sponsored enterprises (GSEs) are rumoured to be test-driving a program to make it easier for independent mortgage banks to acquire the short-term funding needed to make home loans.
The pilot program which has not been formally announced by Fannie and Freddie, is being conducted in conjunction with Provident Funding Associates, a mortgage bank based in Burlingame, California, and NattyMac, a warehouse lender in St. Petersburg, Florida that provides short-term funding to mortgage companies.
The Journal quotes unidentified sources as saying that under the pilot program Freddie Mac and Fannie Mae are making commitments to purchase loans from Provident Funding that are financed by Natty Mac. In return the latter is changed with ensuring that Provident's loans meet certain quality standards set by the GSE's These advance commitments reduce the risk that either NattyMac or Provident will be stuck with loans that they write and/or fund after they are rejected by Fannie and Freddie. After such a rejection a loan can be marketed to other investors only at a very large discount. If a mortgage bank is virtually guaranteed that its loans can be passed through to Freddie and Fannie it is hoped that other lenders will be more willing to provide short term credit.
Traditional warehouse lines, which allowed lenders to fund and hold new loans until a sale to the GSEs or investors could be arranged, have been a victim of the tightening of credit markets. Many mortgage banks have gone out of business when their lines were shortened or withdrawn while others continue to lose business to larger and better financed banks. According to the Journal, three of these big banks, Wells Fargo, Bank of America, and J.P. Morgan Chase accounted for more than half of new home mortgages during the first two quarter of 2009 compared to a 37 percent market share two years earlier.
All four principals involved in the pilot program and the FHFA, the regulator of Fannie and Freddie, have refused to comment on the reported program.
Provident Funding, L.P. is the largest privately held non-bank owned mortgage company in the United States and the 10th largest wholesale lender. It has 48 branches located throughout the country. NattyMac is owned by Guggenheim Partners, LLC a diversified financial services firm with more than $100 billion in assets under supervision. Its focus is on agency-eligible and government insured loans.