$4.4T plan could make mortgages more affordable – or less

NEW YORK – June 3, 2019 – Few homeowners or real estate agents worry about mortgage-backed securities (MBS) – a Wall Street concern – but a change in MBS rules could have a big impact on future homebuyers.

In the mortgage industry, banks and other companies lend money to people who want to buy a home. They then take that mortgage and sell it to entities, though Fannie Mae and Freddie Mac are the biggest players and guarantee nearly half of U.S. residential mortgages. Once sold, the banks have more money to lend to more homebuyers.

Fannie and Freddie, in turn, turn the loans into mortgage-backed securities, which operate similarly to stocks in which individual investors buy them in exchange for an expected return. After this happens, Fannie and Freddie have more money to buy mortgages from banks.

But a new rule for mortgage-backed securities will virtually eliminate the distinction between bonds issued by Fannie Mae and Freddie Mac. It allows market participants putting mortgage bonds together to deliver loans backed by Fannie Mae, Freddie Mac or both when they settle trades in what the industry calls the to-be-announced (TBA) market.

Source: Bloomberg (05/30/19) Maloney, Christopher; Boston, Claire; Gillen, David

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