The mortgage market of the future may end up looking much like that of the past.
With politicians reluctant to tackle an overhaul of housing finance, a reshaping based upon the status quo is gathering pace. On Monday, Federal Housing Finance Agency acting head Edward DeMarco unveiled steps to create a new housing-finance infrastructure.
This would involve combining some back-office functions of Fannie Mae and Freddie Mac with the new entity to be jointly owned by the two mortgage giants. The idea would be to set up a securitization infrastructure for whatever replaces Fannie or Freddie.
Mr. DeMarco's efforts are laudable since no one else is willing to tackle the issue of housing finance. Yet that inaction also means the FHFA's efforts may lead to a housing-finance system that ends up being broadly similar to today's. Although Mr. DeMarco made clear Fannie and Freddie aren't likely to return to their previous corporate form, what replaces them may not end up being that much different in its real function.
If so, the government would likely still backstop a large part of the housing-finance market. While the goal remains to reduce the government's role—it backs more than 90% of all new mortgages—it is tough to see that happening absent broader action that goes far beyond steps like increasing guarantee fees from today's levels.
Those are long-run concerns, though. More immediately, it makes a continued role for mortgage insurers more likely. Their stocks reacted positively to Mr. DeMarco's moves and should continue to benefit.
The losers are investors who have of late driven up preferred stock in Fannie and Freddie, in the hope the firms will survive, unlocking some value. While they may live on in spirit, that won't help those investors.
David Reilly
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