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Th e M Rep o RT | 57 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET the latest FHFa gains support for 'single security' Proposal Researchers' only concern is that the agency is moving too slow. F ollowing the Federal Housing Finance Agency's (FHFA's) recent request for input on its proposal for a single security for Fannie Mae and Freddie Mac, the Urban Institute expressed support for the idea but concern that FHFA may be un- necessarily slow in implementing such a plan. "FHFA's single security pro- posal is well-thought out and worthy of serious consideration and support by all key stakehold- ers," stated the Urban Institute on its Metro Trends blog. However, the institute is "concerned that FHFA may be contemplating a slower pace in the project than it warrants." The securities "would combine the best features of each of the current securities," such that "the security would have the superior pooling features of the current Fannie Mae securities and the superior disclosure features of the Freddie Mac securities," according to the Urban Institute. Under FHFA's proposal, Freddie Mac securities could be placed into Fannie Mae securitiza- tions, and vice versa. The Urban Institute supports the idea of single security for three main reasons, the first of which is that it has the potential to save the Treasury between $400 million and $600 million per year. These savings would occur because Freddie Mac would no longer have to subsidize its guarantee fees to originators to remain competitive and maintain its market share. Second, the Urban Institute suggests a single security would lead to more competition within the mortgage market. A single security would remove some of Fannie Mae's advantage, leading it to rescind some of its mar- ket dominance. Ultimately, the institute suggests this could lead to greater access to credit for consumers. Lastly, a single security "could help pave the way for GSE reform," according to the Urban Institute. mortgage market on track for meltdown? That's what commentator Richard Bove says, but is he right? a s commentators ponder what's in store for home sales in the coming months, one analyst foresees trouble ahead for the mortgage market. In an investment note released early last month, equity research analyst Richard Bove at Rafferty Capital Markets warned clients of a potential mortgage crisis in the making, according to a report from CNBC. With the Federal Reserve on track to end its monthly bond purchases (currently at a rate of $25 billion and falling), Bove cau- tions that the loss of this finan- cial mechanism—one of the tools used to help lift housing out of its post-recession rut—could hurt the market, especially as interest rates start to tick back up. Another cause of concern in Bove's mind is the push from Washington to wind down Fannie Mae and Freddie Mac— which together control about 61 percent of U.S. mortgages, he es- timates—and replace them with a new government corporation. While the proposed Federal Mortgage Insurance Corporation (FMIC) has some support on Capitol Hill, critics—including Bove—argue that investors would be unwilling to take a proposed 10-percent front-end loss on de- faulted loans, spelling the end of the 30-year fixed-rate mortgage, considered the cornerstone of the mortgage market. "This means there will be less money available to fund housing, and the terms of the available funds will be considerably more onerous than what was available under 30-year, fixed-rate loans," Bove reportedly said. "This means higher monthly payments and lower housing prices. It means a crisis in the mortgage markets—and the economy." Not everyone agrees with Bove's assessment, however. In a response, CNBC real estate correspondent Diana Olick called Bove's note a "dramatic over- reaction," asserting that investors are hungry enough to pick up the Fed's slack in purchasing mortgage-backed securities (MBS) and that policymakers aren't likely to end the popular 30-year fixed mortgage any time soon. "Even when the Fed finally pulls out entirely and Fannie Mae and Freddie Mac start to wind down, rates could go up slightly, but they're not going to go up suddenly and not enough to suddenly crash the housing market," Olick said. Instead, she argues, low demand and tight credit standards are the main issues to worry about. "What's wrong with housing right now? Not enough people want to get mortgages. ... That's the problem, not a crash coming this winter," Olick said.