Ed DeMarco, Bryan Whalen, Ed Royce – How to Restart the Private Market for Mortgage Credit

Ed DeMarco, Senior Fellow in Residence, Milken Institute Center for Financial Markets; Former Acting Director, Federal Housing Finance Agency

 

Speakers


Lindsey Johnson, President and Executive Director, U.S. Mortgage Insurers
Stanford Kurland, Founder, Chairman and CEO, PennyMac Financial Services Inc.
Ed Royce, U.S. Representative, California; Chairman, House Foreign Affairs Committee
Bryan Whalen, Group Managing Director, U.S. Fixed Income, TCW

The private market for mortgage credit risk evaporated after the financial crisis. At the peak of the crisis, the default risk on more than 90 percent of new mortgage production was explicitly backed by taxpayers, principally through the FHA and VA loan programs and through the Treasury Department’s financial support of Fannie Mae and Freddie Mac. Even today, taxpayers still back roughly three of every four new mortgages through these entities. The past several years have seen efforts by regulators, lawmakers and market participants to further reduce taxpayer risk, but the process has been slow. Since 2013, Fannie Mae and Freddie Mac have been experimenting with credit risk transfer deals in which they sell some portion of the mortgage credit risk on new mortgages to market participants. Since 2014, the Treasury Department has directly engaged with industry to restart the private mortgage securitization market. This panel will assess the progress to date with these efforts and explore the conditions necessary for a restoration of a deep and liquid market for mortgage credit risk backed by private capital rather than taxpayers.

Fannie Mae and Freddie Mac