Fitch Sees Potential in FHFA’s Goals to Attract Private Capital

Fitch Sees Potential in FHFA’s Goals to Attract Private Capital


The goal of attracting private capital into the mortgage market is at the center of discussions throughout the industry and the government. Thus far, “efforts by the Federal Housing Finance Administration and other federal agencies to provide incentives for the creation of a vibrant private mortgage securitization market have been largely unsuccessful,” according to Fitch Ratings.

However, the ratings agency does see some promise in a couple of FHFA’s goals for this year.

While admitting the “effect of higher g-fees [guarantee fees] is likely to be gradual,” Fitch believes further increases to the GSEs’ g-fees could help level the playing field for private capital.

G-fees are already double their pre-crisis levels and average about 50 basis points for new single-family loans, according to Fitch.

FHFA Acting Director Edward DeMarco stated his intent to raise them even higher during his speech, FHFA’s Conservatorship Priorities for 2013.

Fitch points out, though, that this is not an easy fix. “The uncertainty regarding the Basel III rules for mortgage assets and risk-retention requirements continue to push up the break-even point for many private market participants,” Fitch stated.

In addition to raising g-fees, Fitch commends FHFA’s intent to participate in risk-sharing. However, Fitch said FHFA’s $30 billion goal for 2013 is “very small relative to the outstanding balance of GSE-supported mortgages and recent issuance volumes.”

A third priority for FHFA this year is the creation of a new and entirely separate organization to begin laying the groundwork for the future of the secondary market. Fitch deemed this “an important step by the FHFA,” but again, the ratings agency warned results will not occur overnight.

“[T]his will likely be a time-consuming process that will not result in a near-term fundamental reform of the housing market in the U.S.,” the ratings agency said.

In addition to the FHFA’s reform goals, Fitch pointed out one other step that could lead to an increase of private capital in the mortgage market: lowering the conforming loan limits.

Decreasing conforming loan limits “would significantly increase demand for private capital,” Fitch said.

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