Officially, the Federal Housing Finance Agency (FHFA) is still winding down Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), one of the few things both parties agree on these days, but the real story is more complicated. FHFA chief Mel Watt is preparing for an uncertain future of government involvement in the housing market, and according to Rafferty Capital Markets VP of equity research Richard Bove the GSEs are actively looking for more business.
“This change in attitudes was very evident in a Mortgage Banker Conference in San Diego last week in which all three of the GSEs spoke. They asked for more business according to press reports,” writes Bove. “Some representatives of these companies went so far as to compliment the mortgage bankers for delivering more mortgages to their companies as banks pulled back. These statements are totally contrary to the belief that the government will shut down Fannie and Freddie.”
Bove’s updated thesis includes the CSP
Bove’s argument is that the administration has quietly changed its position and that it actually wants to return Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) to private sector ownership after witnessing slow growth in the housing sector, especially among lower income buyers. The creation of the Common Securitization Platform (CSP) has changed his thesis slightly, he now thinks that a merged entity will be privatized instead of the two GSEs separately, but this is essentially the position that Bove has been maintaining for more than a year.
Fannie Mae: A simpler explanation is to take Watt at his word
Watt is certainly in no rush to shut down Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), but there is a much simpler explanation that fits what we’re seeing. We can simply choose to take Watt at his word that the creation of the CSP is his attempt to ease the transition to some future system without knowing what that system will be (you can check his recent Congressional testimony to see how frustrated he clearly is). That’s not nearly as exciting for GSE longs, but it’s a straightforward reading of recent changes in policy. Bove may prove to be right in the end, but so far we don’t have any indication from Watt that he plans to use his authority to release the GSEs from conservatorship.