Fannie Mae Structure Still Up In the Air; Some MBS Liquidity Returning

LAS VEGAS -- How will the new Fannie Mae quasi-agency be structured? Ask the new president, just as soon as he's elected.<p>Representatives from Fannie Mae didn't have much to offer WesCorp's Credit Union Outlook audience regarding new government-owned entity's structure. For now, they said, it's business as usual with the Treasury Department leaving the specifics up to the next executive administration and Congress.</p><p>"In the short term, they didn't want us to seize up and stop doing business," said Richard Sorkin, vice president of structured transactions from Fannie's capital markets division. "They wanted the confidence back there, and by giving us that government backstop, they hoped that confidence would return."</p><p>The Treasury hasn't directly invested any money into Fannie Mae, but rather, has taken a senior stock position. If the stock goes negative, the government will step in and purchase enough to bring it back to black, Sorkin said.</p><p>How long will Fannie be under conservatorship? Currently, the government doesn't have a time frame.</p><p>"The plan is to be able to function and be a big part of solving this crisis," said Robert Mailley, director of structured transactions. "Right now we're working on a business plan for 2009, but beyond that, it's a debate that will go on for awhile."</p><p>However, the duo mostly stuck to its original presentation topic: the future of securitization.</p><p>"There's no way securitization is dead," Sorkin said. "GSEs were created for a reason: liquidity and stability in marketplace, so the conservatorship should boost confidence in selling and buying our debt. Mortgage-backed securities are still being created every day."</p><p>The securities are alive and well in credit union land, at least. Throughout the event, attendees told stories of cherry picking among AAA-rated mortgage-backed securities in a market where few others are in a position to buy low. Many purchased the investments to offset sluggish loan activity and generate revenue.</p><p>Mailley added that while under conservatorship, there's no limit on Fannie Mae's mortgage-backed security guarantee side of business, and he expects to see increased volume in MBS activity, especially after dust settles on Wall Street.</p><p>Mega pooled securities, smaller pools grouped together by similar characteristics, are currently popular with investors, generating $230 billion so far this year. Sorkin said the activity has given MBS liquidity a much-needed boost, and pooling the securities together reduces administration costs, too.</p><p>Stripped MBS that remove excess servicing from the equation are gaining in popularity, too. Excess servicing is calculated by subtracting the pass-through rate, guaranty fee, minimum servicing fee and lender-paid mortgage insurance.</p><p>"They're really becoming a larger percentage of the market for us, and I think it's a direct function of lenders and investors becoming more familiar with the product," Mailley said. "That's part of why we're here, to let everyone one know there's opportunities out there."</p><p>--handerson@cutimes.com</p>