Andrew Davidson was quoted in a National Mortgage News article titled "Fannie-Freddie overseer puts squeeze on $50B bond market."
A bond market once thought to be key to the futures of Fannie Mae and Freddie Mac — and the roughly $5 trillion of home loans they backstop — could instead find itself on the scrap heap due to their own regulator.
In the past several years, so-called credit-risk-transfer securities have been a primary way for government-controlled Fannie and Freddie to offload the risk of borrowers defaulting on their mortgages to private investors. The market value of such assets, known as CRT, has grown to about $50 billion, with mutual funds, hedge funds and real-estate investment trusts among investors snatching up the bonds.
Some former government officials and housing-finance executives have even loftier ambitions and believe the swelling CRT market can largely eliminate the likelihood that U.S. taxpayers would ever again bail out Fannie and Freddie, as they did during the 2008 crisis.
But a new rule proposal by the Federal Housing Finance Agency, which regulates the mortgage giants, would drastically cut Fannie and Freddie’s incentive to continue selling the bonds. The move would likely shrink the market significantly, in effect leading the companies to keep as much risk as they did when the housing market collapsed more than a decade ago, according to the proposal’s detractors.