Could GSE Reform Be More Than We Bargained For?

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There are all sorts of ideas floating around about ultimate GSE reform. Everyone believes their plan is the best.

What would be best for the GSE’s and the industry?

Should we have one combined agency with some sort of government backing?

Should both Fannie and Freddie stay as is but go private?

Should they operate like Ginnie?

Now, we hear that these agencies are ripe for another big tax payer bail out because of a lack of reserves.

Wait… What happened to all those quarterly profits they’ve been paying back to the Treasury?

Wasn’t anything being put aside for a rainy day? Guess not. It looks as though the government spent the money like a drunken sailor (no offense meant to sailors).

With all the changes going on at Fannie and Freddie, it doesn’t appear that either is expecting to come out from under government control anytime soon. Further, it seems that those much smarter than I cannot come up with a plan to do so. They need a plan that everyone can agree on.

So, these agencies plod along being the largest purchaser of conventional mortgage loans in the secondary market. Could that be the plan?

Can it be that the government doesn’t want Fannie and Freddie on their own? Right now, they’re bringing in a nice chunk of change from the firms’ activities.

Could the long-range plan for these agencies, combined or not, be to become the mortgage market? With their technology, they can originate loans online directly with consumers, process and validate data, value the property, and approve and price loans. All they need is connectivity for the closing and that now exists digitally.

However, we worry about the future of the LO. Could it be the future of the large independent mortgage lender we should be concerned about?

The agencies can originate online direct or through a network of localized mortgage brokers with the agency’s technology.

This could eliminate the need for larger correspondent and wholesale lenders. Yes, these entities now provide an aggregation service. But, with all the advances in technology, will such services still be needed in the future or can the agencies do it all on their own?

This may be just another conspiracy theory or the rantings of a madman…who knows.  What we do know is that Fannie and Freddie continue to grow and mortgage lenders are becoming more and more dependent on their goods and services for survival.

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.