Fannie Mae and Freddie Mac have made plans to merge together in an effort to increase securitizing practices on home loans, which in turn will allow for less government involvement in the overall mortgage market.
Since the bailout of both agencies in 2008, they have currently utilized approximately $190 billion in government money in order to continue doing business. By increasing their securitization efforts through a single company, the two companies will have more control over the mortgage credit industry, and will be able to continue with assisting eligible borrowers in obtaining affordable home loans.
Intentions For The Merger
While the two companies do not actually make the loans, they are responsible for purchasing mortgages and then in turn providing the proper financing to lending institutions in order for the mortgages to be approved. One of the intentions for the merger is shrinking the business by 10 percent in the lending market, a move that will greatly minimize both Fannie Mae and Freddie Mac’s overall roles in the housing finance system. With the two companies merged together, the FHFA believes that taxpayers that currently support these two powerhouses in the mortgage world will lower their overall tax risks, and that working from a single securitization platform will benefit everyone in the long run.
Largest Insurer of Mortgages
FHA is the largest insurer of mortgages in the entire world, and in today’s housing market and economy, more and more potential borrowers are taking the route of applying for government backed loans. The Federal Housing Administration’s main goal is to assist borrowers in obtaining a home loan, even if they have less than perfect credit. With the overabundance of foreclosures in the past few years coupled with job losses and a uncertain economy, the need for FHA loans continues to grow.
Fannie Mae and Freddie Mac are partially funded by the government and regulate the conforming loan market, making them two very powerful entities in the housing world. Additionally, they both offer various programs that are specifically designed for potential borrowers with low to medium credit and past credit problems, allowing risky borrowers a chance at obtaining a home loan that many not have been possible through a standard lending institution.
New Business Venture
While the new business venture is not expected to officially start with the securitization of home loans until 2014, the business plans are underway and the new company is in the process of hiring staff.
Will this new venture work? Only time will tell. With the housing market slowly improving, there are definitely a new crop of interested borrowers that are in need of mortgage loans, and considering the fact that these two mortgage giants have each had their own share of success, a productive merger is definitely a possibility. The main objective of the merger is to produce a product that can be sold or utilized by policy makers today, and that will have a positive effect on tomorrow’s mortgage market, and a single securitization platform may just be the key to a successful future.