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Reports US

US stock market daily report (May 13, 2014, Tuesday)

May 14, 2014, Wednesday, 05:15 GMT | 01:15 EST | 08:45 IST | 11:15 SGT
Contributed by Millennium Traders

In an effort to avoid derailing the housing market’s recovery, Federal Home Loan Mortgage Corporation (FMCC-OTC BB) and Federal National Mortgage Association (FNMA-OTC BB) will not be lowering limits for home loans they back. Into mid-day on Tuesday, investors showed their pleasure of the decision with shares of both Fannie Mae and Freddie Mac holding higher by 6%. Trading volume on both of the mortgage giants was heavy, with both already surpassing average daily trading volume into early afternoon trading hours.

Mel Watt, director of the Federal Housing Finance Agency said at a Brookings Institution event, “This decision is motivated by concerns about how such a reduction could adversely impact the health of the current housing-finance market.” Watt, one of the most powerful figures in the U.S. housing market, is generally seen as favoring efforts to support borrowers’ access to credit, rather than focusing on winding down the government sponsored enterprises.

Fannie Mae and Freddie Mac back nearly 60% of mortgages in the USA. The pair control regulatory decisions over loan limits, fees and other areas which can have a major impact on who can buy a home in the U.S. Many first time and younger home buyers can’t afford to compete with investors and have a difficult time obtaining credit. Sales of million-dollar homes and all-cash home buyers have been surging. Across the country, the housing market varies widely across the country with many homeowners who continue to face high mortgage payments and foreclosures while other areas are posting new record home prices. Relaxing representation and warranty standards for repurchases may induce lenders to expand the pool of borrowers who can obtain mortgages.

In an attempt to work toward neighborhood stabilization initiative, Watt announced a pilot program, which will start in Detroit in the coming weeks, to help areas that were crippled by the downturn. The program is expected to work through loan modifications, among other strategies. Watt’s speech signals that he is considering how best to support access to housing, including lower-income families.

Watt said the FHFA has three goals for the housing industry to maintain, reduce and build. Watt said, “It means that we’ll work to preserve and conserve Fannie Mae and Freddie Mac’s assets. And it means that we’ll work to ensure a liquid and efficient national housing finance market.” He added that the FHFA is looking to ensure that Fannie and Freddie operate safely in the current environment. Per Watt, the FHFA is reviewing feedback as to whether Fannie and Freddie should increase fees they charge to back loans. However, such an increase will make mortgages more expensive since those fees are typically passed along to borrowers. Watt said, “Since any stumbles along the way could have ripple effects in the $10 trillion housing finance market, there’s a lot at stake in getting this right. As a result, our decision has been to ‘de-risk’ this project.”

Watt is focused on risk aversion and announced that Fannie and Freddie have been directed to transfer more risk and to continue to reduce their retained portfolios. “As their portfolios continue to decline, they are transferring interest rate risk and liquidity risk from these portfolios to the private sector,” Watt said.

The FHFA is relaxing terms for when Fannie and Freddie demand sellers repurchase a loan, an action approved by lenders. Watt said, “Lenders believe that too much uncertainty still exists in this area for them to ease their credit overlays. Ultimately, this undermines the goal of improving access to mortgage credit for creditworthy borrowers.” The FHFA continues to work on a common securitization platform, a new platform which can take over the current securitizing business of Fannie and Freddie, with the one objective to produce a single common security.