New York Times reports that banks are suggesting that they be allowed to take over some of Fannie and Freddie’s work of issuing securities backed by a government guarantee.
The banks have presented their ideas publicly through trade groups. Housing industry consultants and people familiar with recent meetings at the Treasury Department say these banks view the government’s overhaul of the mortgage market as a potential profit opportunity.
Wall Street realized it was never going to dislodge Fannie and Freddie from their dominant position as the securitizers of traditional mortgages. If it hoped to circumvent the GSEs and keep all the profits to itself, Wall Street would have to find some other mortgage product to securitize, products that Fannie and Freddie couldn’t—or wouldn’t—touch.
Government data shows Fannie and Freddie didn’t take the same risks that Wall Street’s mortgage-backed securities machine did. Mortgages financed by Wall Street from 2001 to 2008 were 4½ times more likely to be seriously delinquent than mortgages backed by Fannie and Freddie.… Fannie and Freddie, Cecala says, didn’t start making a big move into riskier mortgages until the mortgage boom was already under way, and they were fighting to reclaim market share they’d lost to more aggressive Wall Street players. Even then, they were more cautious than Lehman Brothers and other investment banks. For example, just over 15 percent of Fannie- and Freddie-backed loans made in 2007 have been seriously delinquent, compared to nearly 42 percent of mortgages bankrolled by Wall Street, according to the FHFA.