GSEs Testing Program to Aid Independent Mortgage Bankers

According to information published in The Wall Street Journal, Freddie Mac andrnFannie Mae are preparing to step up and help some of their affiliates in therncurrent credit crunch.

The two government sponsored enterprisesrn(GSEs) are rumoured to be test-driving a program to make it easier for independentrnmortgage banks to acquire the short-term funding needed to make home loans.

The pilot program which has not beenrnformally announced by Fannie and Freddie, is being conducted in conjunctionrnwith Provident Funding Associates, a mortgage bank based in Burlingame,rnCalifornia, and NattyMac, a warehouse lender in St. Petersburg, Florida thatrnprovides short-term funding to mortgage companies. 

The Journalquotes unidentified sources as saying that under the pilot program Freddie Macrnand Fannie Mae are making commitments to purchase loans from Provident Fundingrnthat are financed by Natty Mac.  Inrnreturn the latter is changed with ensuring that Provident's loans meet certain qualityrnstandards set by the GSE's  These advancerncommitments reduce the risk that either NattyMac or Provident will be stuckrnwith loans that they write and/or fund after they are rejected by Fannie andrnFreddie.  After such a rejection a loanrncan be marketed to other investors only at a very large discount. If a mortgagernbank is virtually guaranteed that its loans can be passed through to Freddiernand Fannie it is hoped that other lenders will be more willing to provide shortrnterm credit.

Traditional warehouse lines, which allowedrnlenders to fund and hold new loans until a sale to the GSEs or investorsrncould be arranged, have been a victim of the tightening of credit markets.  Many mortgage banks have gone out of businessrnwhen their lines were shortened or withdrawn while others continue to lose business tornlarger and better financed banks. rnAccording to the Journal, threernof these big banks, Wells Fargo, Bank of America, and J.P. Morgan Chasernaccounted for more than half of new home mortgages during the first two quarterrnof 2009 compared to a 37 percent market share two years earlier.

All four principals involved in thernpilot program and the FHFA, the regulator of Fannie and Freddie, have refused torncomment on the reported program. 

ProvidentrnFunding, L.P. is the largest privately held non-bank owned mortgage company inrnthe United States and the 10^th largest wholesale lender. It has 48rnbranches located throughout the country. NattyMac is owned by GuggenheimrnPartners, LLC a diversified financial services firm with more than $100 billionrnin assets under supervision.  Its focusrnis on agency-eligible and government insured loans.

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