Mortgage Industry News

Every day it seems there is a new volley of posturing and positioning around the fate of the GSEs.  Personally, I find the back peddling by previously outspoken critics of the government-sponsored entities irritating and hypocritical. By back peddling, I mean proposals for the reconstitution of a government-insuring role in the mortgage industry at the same time the current players are being wound down.

Just a month ago, they were flagellating on the Left and on the Right about Fannie and Freddie’s “dirty deeds,” now they are wont to pass judgment. Get a spine, I say.

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by Mary Kladde

Part II – in follow up to commentary by Ruth Lee

Eliminating the GSEs is like throwing the baby out with the bathwater.  It is counterintuitive and ill advised. If the GSEs are eliminated the impact on the industry as whole will be severe.  The days of 80% LTV were not – even if you can remember them – the “good old days” and is not a time to which we should aspire to return.

The problem that I refer to as dirty bathwater is, more literally, the legacy infrastructure and context of mortgage lending. Up to this point, our industry has been a bit, shall we say, unstructured, in many of its business practices.  After all, in a non-regulated environment, there are fewer and looser “standards.”

Now, with the push for greater standardization picking up heft and the FNMA Loan Quality Initiative (LQI) providing guidance and motivation, perhaps we can get those chubby, troublesome GSEs cleaned up and on their way to health once again.  And another thing – I’ve said it before and will say it again soon, I promise – Loan level review both on pre-closing side of the lender and on the pre-purchase side at investor is destined to become an industry standard, and lenders should push for it.

by Ruth Lee

Lawmakers, consumer advocates, politicos and agenda driven bystanders are all weighing in on the efficacy and relative value of the two investor giants in the market.  Lawmakers cringe at the shared liability and risk exposure of the taxpayer.  Consumer advocates want the GSEs to focus more on rental housing.  Politicos want to assess the two GSEs with blame for every conservative, liberal or otherwise economic misstep since the collapse of the market.  First, I would argue that most of these guys have a murky (at best) understanding of what they both do…and second, I think that this base misunderstanding could serve to completely destroy the housing industry if acted upon.

The GSEs don’t make mortgages.  The GSE fund mortgages.  Back in the “old days,” if you wanted $5K to buy a house, you would go to your local bank, thrift or savings and loan.  They would lend you $5K for thirty years.  They usually wanted a maximum LTV of 80%.  You would participate in the risk with your local banker.  When housing prices started hitting the stratosphere, a lot of local banks found that they just didn’t have that kind of money to tie up for 30 years potentially.  So… the GSEs were created to fund those loans through securitization and investment.  As part and parcel of that discussion, it also required some standardization, like AUS.

Perhaps there is a burgeoning private market for securitizing mortgages.  Perhaps they all have a fundamental working knowledge of how to underwrite the risk, leverage the volume and inveigh investor confidence…but I sincerely doubt it.  We struggle to push perfectly standard, qualified jumbo securitizations out in this market at any LTV or FICO.

Save us from the best intentions of ideologues and polemicists… they know not what they do.