Garrett-Watts on GSE’s Takeover, and possible influences on new origination

September 7th, 2008 · 1 Comment


(This was written right after the announcement.)

To our Clients, Colleagues, and Friends:

The U.S. Government has seized Fannie Mae and Freddie Mac this Sunday morning.

They will still be in business Monday, but with their existing shareholders no longer owning it.

We tend to think there will be minimal impact on the day-to-day selling of loans to them.

We can envision three things happening after there is a thorough review by the Treasury Department of all aspects of their operations.

  • We would think that the two entities will cut way, ways back on underwriting waivers.
  • We think they might also cut way back on offering lower Guaranty Fees in return for promised volume.  If this were to occur, it will suddenly be much more attractive to sell directly to them, as opposed to selling to the big aggregators who get lower “G” fees. Watch for this and get ready to become Fannie Mae or Freddie Mac approved.
  • Because they will ultimately be required to hold more capital, and because capital is not cheap, they will not be as unrestrained in pursuing volume and growth as they have been in the past.  They could cut back on volume by raising rates as well as tightening underwriting standards.  We predict a little of both.

You should watch all of this carefully.

Interesting times, aren’t they?

Joe Garrett and Corky Watts  -   Garrett, Watts & Co.

Tags: Commentary · GSEs · Mortgage Market

1 response so far ↓

  • 1 Jeff Curtis // Sep 8, 2008 at 6:53 am

    In regards to your 3rd point…don’t you think it’s more likely that rates will decrease for the near term, until the congress or new administration can figure out the next step? I agree that they will limit the amount of volume on their books, but aren’t they more likely to do that through the secondary market (provided investors are willing to buy the MBS pools)? I am also curious to know your thoughts on the best course of action for the 2 entities going forward.

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