EXIT: Uncle Sam Makes Escape Route From Mortgage Monopoly?

One of main supporters of the real estate market over the past several years has been Uncle Sam.  Through the Fannie Mae and Freddie Mac government enterprises, FHA loans have become the savior of mortgage lending.  The mortgage meltdown of 2008 left the finance market for homes in a ruinous state.  Government stepped in to pick up the slack and taxpayers have been shouldering the risk ever since.

This week one of my loan officers emailed me that FHA is increasing mortgage insurance fee.  The MI, as it is called, is a monthly fee paid in addition to the principal and interest for at least five years and can be terminated once the borrower gets to 20% equity on their home.The new change states that the fee will now be for the life of the loan.  That is a big change!

Some of these changes reflect the fact that FHA has not been as stringent in underwriting loans as it should have been and default rates are higher than they should be.  The longer payment of MI will help cover some of those losses.  But, this move does not happen in a vacuum.  As FHA loans become more expensive, it makes private lending more competitive.

Indeed, a news report from Housingwire seems to indicate movement on the private lending front:

  Mortgage real estate investment trust Cerberus Mortgage Capital filed for its IPO Friday, unveiling wide ranging plans to purchase residential mortgage-backed securites and mortgage servicing rights, according to the document at the Securities & Exchange Commission.
"We intend to pursue a broad range of investments in residential mortgage whole loans and other real estate-related assets, including securitized financial assets, mortgage servicing rights, excess mortgage servicing rights and residential housing for lease, which, together with RMBS, we refer to as our target assets," the filing states. 

New York-based Cerberus plans to raise $150 million in its IPO. 

"We expect to use borrowings as part of our strategy," the filing states. "We intend to purchase RMBS throughout the capital structure, including not only the highest rated AAA/Aaa securities but also securities rated below investment grade or unrated securities."

This is good news.  When private parties are willing to enter the market, it means that fundamentals make sense.  Although it will take a lot more than one company to put a big dent in the market, this is a move in the right direction and an indication that the mortgage market can and will right itself.