Business is humming along for Fannie Mae

Bank of America made the seemingly dramatic decision last week to stop selling its mortgages to Fannie Mae. But BoA’s decision hardly means that banks are abandoning the government-sponsored housing giants, as I explain this weekend:
(SOURCE: BLOOMBERG )

The reality is that there aren’t many other options when it comes to the secondary mortgage market, more than 90 percent of which is controlled by Fannie, Freddie and other government-sponsored enterprises. Bank of America says that it will also keep some of the mortgages on its own books, rather than sell them. But regulations limit the amount of risk that a taxpayer-insured bank can take on its own balance sheet....

Guy D. Cecala, publisher of the trade publication Inside Mortgage Finance, agreed that other mortgage servicers aren’t likely to start rushing for the exits. “Whether you like Fannie or Freddie, they’re two-thirds of the market. There’s no way to really fight that,” Cecala said. “Most lenders need them to exist.”...

Meanwhile, some relatively smaller banks have ramped up their mortgage operations: Wells Fargo, for instance, has rapidly expanded its mortgage lending operations, both in terms of origination and sales to the secondary market.

And Fannie has been among those to benefit, as well, even as customers such as Bank of America have withdrawn. “Between the third and fourth quarter last year, customers increased their business in mortgages sold to Fannie by 60 percent, while Bank of America reduced their loans by 49 percent,” Cecala said. “Bank of America is an isolated situation.”

Federal Housing Finance Agency’s Edward DeMarco recently laid out his own long-standing plan for ultimately unwinding Fannie and Freddie and transitioning to a privatized secondary mortgage market. But even supporters of DeMarco’s plan agree that transition is not likely to take place any time soon.