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First publication:
Washington (AFP)
Preserving the dream of the small US owner while giving back the reins of real estate financing to the private sector: the Trump government wants to tackle the reform of the mortgage market, which nearly sank the US economy in 2008.
Since the bursting of the real estate bubble more than ten years ago, caused by the proliferation of risky loans, the two giants of the mortgage market, Fannie Mae and Freddie Mac, have fallen into the bosom of the State, a nationalization that had to be temporary.
The reform of these mortgage refinancing bodies which was to be a "priority" of the Trump administration was slow to come because of its great complexity and diverging interests, but the US president ordered the Treasury and the regulators last week to tackle it.
In September 2008, it took up to $ 188 billion of taxpayers' money to save the two real estate refinancing organizations, preventing them from taking down the huge mortgage bond market and possibly to be the entire American economy.
"The lack of real estate finance reform since the 2008 crisis left taxpayers at the mercy of possible future financial bailouts," said a White House memorandum.
Freddie Mac and Fannie Mae – whose names are just the phonetic adaptation of their acronyms as the Federal National Mortgage Association (FNMA) for Fannie Mae–, do not make loans but buy real estate loans from banks and guarantee them.
The two organizations, also called GSE (Government Sponsored Enterprise), then cut into securities and resell to investors thus guaranteeing some $ 6 trillion worth of securities, making it the second largest bond market in the world after the Treasury bills.
It is this credit securitization financing system that has seen the birth of the famous 30-year mortgage, a rarity in the world by its duration, if not in Denmark. By making possible lower monthly installments, it has allowed millions of Americans to become homeowners.
– Hunting lucrative markets –
A decade after the crisis, if a broad banking reform to limit systemic risk was passed in 2010, that of mortgage refinancing still faces many unresolved issues.
How to recapitalize and privatize these organizations while guaranteeing a state guarantee for the mortgage securities they resell? How can this lucrative loan resale sector be opened up to competition, as the government wants? How to maintain a certain public service mission to treat lenders and borrowers fairly regardless of the regions or the physiognomy of local real estate markets?
In his memorandum, Donald Trump does not say that he will rely on Congress to draw this reform, but the Treasury Secretary Steven Mnuchin assured that he intended to work with elected officials on this issue.
Last week, the Senate Banking Commission held two-day hearings with experts and bankers who showed investors' interest in taking part in this mortgage refinancing market.
"Investors' appetite for real estate risk is measured in tens of billions of dollars a month," says Michael Bright, chairman of Structured Finance Industry Group (SFIG), a group of securitization specialists.
"The reform should build on this dynamic so that this private capital helps to increase access to mortgage loans," he adds.
When the real estate market goes well, this secured securitization of real estate loans is indeed the most profitable.
Fannie Mae and Freddie Mac have paid the Treasury some $ 286 billion in dividends since they fell under the government, a sum well above that paid in 2008 to save them.
The introduction of private capital and increased competition is, however, a concern for some social actors.
For Michael Calhoun, president of the nonprofit Center for Responsible Lending Center, he risks "increasing the hunt for the most lucrative markets and serving only certain regions or types of borrowers".
? 2019 AFP
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