MBA’s Bob Broeksmit sees risks in merging Fannie and Freddie

Amid recent reporting that President Trump is weighing a $500 billion stock offering for Fannie Mae and Freddie Mac and that he might be considering a merger of the two mortgage giants, Mortgage Bankers Association‘s CEO and President Bob Broeksmit authored a blog post highlighting the benefits of having two government-sponsored enterprises (GSEs).

In his blog, posted on Thursday, Broeksmit warned that a Fannie-Freddie merger would harm competition and increase risks in the U.S. housing finance system, noting that a similar idea was put forward by the National Economic Council in September 2016 and “received careful review across the industry” before ultimately being rejected.

“Competition between Fannie Mae and Freddie Mac has been central to their success in providing liquidity and stability to the mortgage market,” Broeksmit wrote. “Creating a government-conferred monopoly would diminish innovation, degrade service to market participants, and heighten systemic risk by concentrating housing finance operations within a single entity.”

Broeksmit said the competition between Fannie and Freddie that exists today drives a range of benefits for lenders and borrowers, including technological development, risk-sharing in multifamily financing, specialized market expertise and product innovation that expands access to credit.

“Conservatorship itself has already constrained the GSEs’ ability to compete and innovate,” he wrote, adding that the conservatorship was never intended to be permanent. “This moment presents a unique opportunity to set a path toward ending conservatorship, lock in critical safeguards, and build on the strengths of our current system — most notably, the wealth-creation engine that is homeownership facilitated by the 30-year fixed-rate mortgage.”

Broeksmit conceded that while alignment between the GSEs makes sense in some areas — such as standardized servicing, documentation, appraisal standards and the uniform mortgage-backed security (UMBS) — consolidation would undermine incentives to compete.

The future of the GSEs will be the topic of a session at HousingWire’s Mortgage Banking Summit on Oct. 7 in Dallas. Pete Mills, senior vice president of residential policy and strategic industry engagement at MBA, and Rob ZImmer, head of external affairs at the Community Home Lenders of America, will be talking about the latest developments in D.C. and how lenders can prepare for any changes.