According to information published in The Wall Street Journal, Freddie Mac and
Fannie Mae are preparing to step up and help some of their affiliates in the
current credit crunch.
The two government sponsored enterprises
(GSEs) are rumoured to be test-driving a program to make it easier for independent
mortgage banks to acquire the short-term funding needed to make home loans.
The pilot program which has not been
formally announced by Fannie and Freddie, is being conducted in conjunction
with Provident Funding Associates, a mortgage bank based in Burlingame,
California, and NattyMac, a warehouse lender in St. Petersburg, Florida that
provides short-term funding to mortgage companies.
The Journal
quotes unidentified sources as saying that under the pilot program Freddie Mac
and Fannie Mae are making commitments to purchase loans from Provident Funding
that are financed by Natty Mac. In
return the latter is changed with ensuring that Provident's loans meet certain quality
standards set by the GSE's These advance
commitments reduce the risk that either NattyMac or Provident will be stuck
with loans that they write and/or fund after they are rejected by Fannie and
Freddie. After such a rejection a loan
can be marketed to other investors only at a very large discount. If a mortgage
bank is virtually guaranteed that its loans can be passed through to Freddie
and Fannie it is hoped that other lenders will be more willing to provide short
term credit.
Traditional warehouse lines, which allowed
lenders to fund and hold new loans until a sale to the GSEs or investors
could be arranged, have been a victim of the tightening of credit markets. Many mortgage banks have gone out of business
when their lines were shortened or withdrawn while others continue to lose business to
larger and better financed banks.
According to the Journal, three
of these big banks, Wells Fargo, Bank of America, and J.P. Morgan Chase
accounted for more than half of new home mortgages during the first two quarter
of 2009 compared to a 37 percent market share two years earlier.
All four principals involved in the
pilot program and the FHFA, the regulator of Fannie and Freddie, have refused to
comment on the reported program.
Provident
Funding, L.P. is the largest privately held non-bank owned mortgage company in
the United States and the 10th largest wholesale lender. It has 48
branches located throughout the country. NattyMac is owned by Guggenheim
Partners, LLC a diversified financial services firm with more than $100 billion
in assets under supervision. Its focus
is on agency-eligible and government insured loans.