Fannie Mae and Freddie Mac Could Fix What Ails VA, FHA Lending

271
fannie-freddie-va-fha-lending

Most high-performing businesses have invested heavily in technology during the last 10 years – and Fannie Mae and Freddie Mac are cases. They’ve both made large investments in development while returning almost $280 billion to taxpayers following a 2008 bailout. With the continuing future of Fannie and Freddie still unclear, we should realize the value within both of these enterprises and utilize them to make the remaining federal government’s mortgage marketplace activities safer, better and more transparent

Fannie and Freddie have built a common securitization system to issue their bonds that is the absolute best in the industry. This effectiveness lowers the price of home loan credit to the American home owner. They’ve also built a market to sell mortgage credit risk to personal investors effectively, transparently, and on an enormous scale. Fannie and Freddie aren’t accumulating balance sheets with large credit risk like they used to, but instead, they are now offering significant portions of this risk to private traders and using their status and technology to maintain low home loan rates.

However, the systems, efficiency, and know-how that propel Fannie and Freddie each day do not prolong to the federal government’s entire housing financing footprint. The Department of Housing and Urban Development, Federal Housing Administration, Department of Agriculture and Department of Veterans Affairs all have main mortgage finance applications that aren’t technologically savvy, aren’t effective and leave all of the credit risk with the U.S. taxpayer. The lending completed by FHA, USDA and VA is really important to your country, especially veterans, people residing in rural areas, and lower- and moderate-income families. However there is absolutely no cause that this lending ought to be performed inefficiently and where in fact the taxpayer takes 100% of the risk.

For instance, Walker & Dunlop has tremendous level, being the #1 Fannie Mae loan provider, #3 Freddie Mac lender, and #3 HUD lender predicated on strong commitments, within the last fiscal year. However in the last two years, the common processing period from a customer signing financing app to closing the mortgage was 61 days for Fannie Mae, 75 days for Freddie Mac, and 352 days for HUD. This significantly different timetable is because the systems, procedures, and technology that the government-sponsored enterprises implemented.

In 2007, the FHA, the USDA and the VA covered or guaranteed $99 billion of loans for single-family and multifamily debtors across the USA. When the financial meltdown hit, and private capital fled, these three government financing programs stepped in, raising their lending quantity to $293 billion in 2011. That is exactly the part the government and its own “countercyclical” capital should play. As our economy has recovered, and private capital has came back, these three companies have managed their elevated marketplace presence. Strikingly, the FHA assured $226 billion of single-family loans in 2017.

With the appointment of a fresh Federal Housing Finance Agency director in 2019, the Trump administration should leverage the status, efficiency and transparency of Fannie and Freddie and move a lot of the subsidized financing that the federal government guarantees through FHA, USDA and the VA in to Fannie and Freddie. This change would decrease the government’s costs, would allow for these essential applications to be managed in an even more efficient way, and allows Fannie and Freddie to make use of their broad marketplace reach and transparency to provide private capital to the elements of the housing finance program that currently sit down in the depths of the government – driving down the cost of credit and reducing taxpayer risk.