Mortgage Insurers and The Next Housing Crisis

photo by Jeff Turner

The Inspector General of the Federal Housing Finance Agency has released a white paper on Enterprise Counterparties: Mortgage Insurers. The Executive Summary reads,

Fannie Mae and Freddie Mac (the Enterprises) operate under congressional charters to provide liquidity, stability, and affordability to the mortgage market. Those charters, which have been amended from time to time, authorize the Enterprises to purchase residential mortgages and codify an affirmative obligation to facilitate the financing of affordable housing for low- and moderate-income families. Pursuant to their charters, the Enterprises may purchase single-family residential mortgages with loan-to-value (LTV) ratios above 80%, provided that these mortgages are supported by one of several credit enhancements identified in their charters. A credit enhancement is a method or tool to reduce the risk of extending credit to a borrower; mortgage insurance is one such method. Since 1957, private mortgage insurers have assumed an ever-increasing role in providing credit enhancements and they now insure “the vast majority of loans over 80% LTV purchased by the” Enterprises. In congressional testimony in 2015, Director Watt emphasized that mortgage insurance is critical to the Enterprises’ efforts to provide increased housing access for lower-wealth borrowers through 97% LTV loans.

During the financial crisis, some mortgage insurers faced severe financial difficulties due to the precipitous drop in housing prices and increased defaults that required the insurers to pay more claims. State regulators placed three mortgage insurers into “run-off,” prohibiting them from writing new insurance, but allowing them to continue collecting renewal premiums and processing claims on existing business. Some mortgage insurers rescinded coverage on more loans, canceling the policies and returning the premiums.  Currently, the mortgage insurance industry consists of six private mortgage insurers.

In our 2017 Audit and Evaluation Plan, we identified the four areas that we believe pose the most significant risks to FHFA and the entities it supervises. One of those four areas is counterparty risk – the risk created by persons or entities that provide services to Fannie Mae or Freddie Mac. According to FHFA, mortgage insurers represent the largest counterparty exposure for the Enterprises. The Enterprises acknowledge that, although the financial condition of their mortgage insurer counterparties approved to write new business has improved in recent years, the risk remains that some of them may fail to fully meet their obligations. While recent financial and operational requirements may enhance the resiliency of mortgage insurers, other industry features and emerging trends point to continuing risk.

We undertook this white paper to understand and explain the current and emerging risks associated with private mortgage insurers that insure loan payments on single-family mortgages with LTVs greater than 80% purchased by the Enterprises. (2)

It is a truism that the next crisis won’t look like the last one. It is worth heeding the Inspector General’s warning about the

risks from private mortgage insurance as a credit enhancement, including increasing volume, high concentrations, an inability by the Enterprises to manage concentration risk, mortgage insurers with credit ratings below the Enterprises’ historic requirements and investment grade, the challenges inherent in a monoline business and the cyclic housing market, and remaining unpaid mortgage insurer deferred obligations. (13)

One could easily imagine a taxpayer bailout of Fannie and Freddie driven by the insolvency of the some or all of the six private mortgage insurers that do business with them. Let’s hope that the FHFA addresses that risk now, while the mortgage market is still healthy.

FHA Annual Check-up

The Department of Housing and Urban Development released its Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund. The MMIF fund is the FHA’s main vehicle for insuring mortgages. As we saw last week, FHA reverse mortgage (formally known as “Home Equity Conversion Mortgage” or “HECM”) portfolio is not doing so well. FHA standard (sometimes referred to as “forward”) mortgages are doing better, although their performance is also slipping.

The MMIF declined from its 2.35 percent FY 2016 Capital Ratio to 2.09 percent. This still exceeds its statutorily-required level of 2.00 percent.  The Economic Net Worth of the MMIF was $25.6 billion while the MMIF Insurance-in-Force was approximately $1.23 trillion at the end of FY 2017. The decline was driven by the negative Economic Net Worth of the reverse mortgage portfolio, as the capital ratio for the forward mortgage portfolio on its own was 3.33%.

The report contains a multitude of useful tables and charts about the FHA’s mortgage portfolio. The FHA has an 18 percent share of the mortgage market, which is pretty high. (Table A-2) Indeed, it is in the same range of its market share during the financial crisis years (2008-2010). The FHA remains a strong force in the first-time homebuyer market, with an 82.2 percent share. (Table B-2)

The FHA’s objectives for FY 2018 are worth reviewing:

Play a Significant Role in Disaster Recovery. In the wake of Hurricanes Irma, Harvey, and Maria, and wildfires in California, in FY 2017 and the first part of FY 2018, FHA has played a significant role in relief and recovery efforts in affected areas, while taking immediate actions to protect its Single Family assets and financial exposure. (78)

Make Necessary Changes to the Home Equity Conversion Program (HECM). During FY 2017, FHA revised the HECM initial and annual Mortgage Insurance Premiums (MIPs), and Principal Limit Factors (PLFs). These revisions were necessary to enable FHA to continue to endorse HECM loans in FY 2018, protect the program for seniors, and balance serving FHA’s mission with taxpayer protection. (79)

No less important than these objectives is the FHA’s second-to-last one, Technology Modernization:

FHA is working to update its systems over the coming years to allow the Agency to work more effectively with lenders participating in the program, while operating FHA with greater efficiency and control. The technology systems that support FHA’s Single Family business have an average age of more than 18 years, with the Computerized Homes Underwriting Management System (CHUMS) exceeding 40 years. Similarly, the systems supporting the servicing, default, claims and REO areas have an average age of 14 years. FHA’s systems have been maintained, modified and enhanced over the years, but it has become fundamentally difficult and exceedingly expensive to maintain systems beyond their usable life. FHA’s outdated systems make it more difficult to work with lenders and to collect and manage important data. FHA remains a largely paper-processing entity while the rest of the industry has increasingly migrated to digital processes. FHA needs systems that can capture and effectively process the extensive volumes of data now in use, with enhanced storage and processing capabilities to handle the migration from paper forms to digital ones. Additionally, FHA requires the ability to analyze and manage insured loans comprehensively over the many phases of the mortgage life cycle. (80)

When you stop and think about how bad the state of the FHA’s technology is, you think that maybe this should be their top priority.

Rethinking FHA Insurance

The Congressional Budget Office issued a report on Options to Manage FHA’s Exposure to Risk from Guaranteeing Single-Family Mortgages. FHA insurance stands out from other forms of mortgage insurance because it guarantees all of a lender’s loss, rather than just a portion of it. It is certainly a useful exercise to determine whether the FHA could reduce its exposure to those potential credit losses while also making home loans available to people who would otherwise have difficulty accessing them. This report evaluates the options available to the FHA:

The Federal Housing Administration (FHA) insures the mortgages of people who might otherwise have trouble getting a loan, particularly first-time homebuyers and low-income borrowers seeking to purchase or refinance a home. During and just after the 2007–2009 recession, the share of mortgages insured by FHA grew rapidly as private lenders became more reluctant to provide home loans without an FHA guarantee of repayment. FHA’s expanded role in the mortgage insurance market ensured that borrowers could continue to have access to credit. However, like most other mortgage insurers, FHA experienced a spike in delinquencies and defaults by borrowers.

Recently, mortgage borrowers with good credit scores, large down payments, or low ratios of debt to income have started to see more options in the private market. The Congressional Budget Office estimates that the share of FHA-insured mortgages going to such borrowers is likely to keep shrinking as credit standards in the private market continue to ease. That change would leave FHA with a riskier pool of borrowers, creating risk-management challenges similar to the ones that contributed to the agency’s high levels of insurance claims and losses during the recession.

This report analyzes policy options to reduce FHA’s exposure to risk from its program to guarantee single-family mortgages, including creating a larger role for private lenders and restricting the availability of FHA’s guarantees. The options are designed to let FHA continue to fulfill its primary mission of ensuring access to credit for first-time homebuyers and low-income borrowers.

*     *     *

What Policy Options Did CBO Analyze?

Many changes have been proposed to reduce the cost of risk to the federal government from FHA’s single-family mortgage guarantees. CBO analyzed illustrative versions of seven policy options, which generally represent the range of approaches that policymakers and others have proposed:

■ Guaranteeing some rather than all of the lender’s losses on a defaulted mortgage;

■ Increasing FHA’s use of risk-based pricing to tailor up-front fees to the riskiness of specific borrowers;

■ Adding a residual-income test to the requirements for an FHA-insured mortgage to better measure borrowers’ ability to repay the loan (as the Department of Veterans Affairs does in its mortgage guarantee program);

■ Reducing the limit on the size of a mortgage that FHA can guarantee;

■ Restricting eligibility for FHA-insured mortgages only to first-time homebuyers and low- to moderate-income borrowers;

■ Requiring some borrowers to receive mortgage counseling to help them better understand their financial obligations; and

■ Providing a grant to help borrowers with their down payment, in exchange for which FHA would receive part of the increase in their home’s value when it was sold.

Although some of those approaches would require action by lawmakers, several of the options could be implemented by FHA without legislation. In addition, certain options could be combined to change the nature of FHA’s risk exposure or the composition of its guarantees. CBO did not examine the results of combining options.

What Effects Would the Policy Options Have?

Making one or more of those policy changes would affect FHA’s financial position, its role in the broader mortgage market, and the federal budget. All of the options would improve the agency’s financial position by reducing its exposure to the risk of losses on the mortgages it insures (see Table 1). The main reason for that reduction would be a decrease in the amount of mortgages guaranteed by FHA. CBO projects that under current law, FHA would insure $220 billion in new single-family mortgages in 2018. The options would lower that amount by anywhere from $15 billion to $77 billion (see Figure 1). Some options would also reduce FHA’s risk exposure by decreasing insurance losses as a percentage of the value of the guaranteed mortgages. (1-2)

Securitizing Single-Family Rentals

photo by SSobachek

Laurie Goodman and Karan Kaul of the Urban Institute’ Housing Finance Policy Center have issued a a paper on GSE Financing of Single-Family Rentals. They write,

Fannie Mae recently completed the first government-sponsored enterprise (GSE) securitization of single-family rental (SFR) properties owned by an institutional investor. This securitization, Fannie Mae Grantor Trust 2017-T1, was for Invitation Homes, one of the largest institutional players in the SFR business. When this transaction was first publicly disclosed in January as part of Invitation Homes’ initial public offering, we wrote an article describing the transaction and detailing some questions it raises. Now that the deal has been completed and more details have been released, we wanted to look closely at some of its structural aspects, examine the need for this type of financing, and discuss SFR affordability. (1, citations omitted)

By way of background, the paper notes that

The 2015 American Housing Survey indicates that approximately 40 percent of the US rental housing stock is in one-unit, single-family structures, with another 17 percent in two- to four-unit structures, which are also classified as single-family. Thus, 57 percent of the US rental stock falls under the single-family classification. Although this share increased from 51 percent in 2005 to 57 percent in 2015, this increase was preceded by an almost identical decline from 56.6 percent in 1989 to 51 percent in 2005.

Most SFR properties are owned by mom and pop investors. These purchases were typically financed through the GSEs’ single-family business. Fannie Mae allowed up to 10 properties in the name of a single borrower, and Freddie Mac allowed up to six properties. Rent Range estimates that 45 percent of all single-family rentals are owned by small investors with only one property and 85 percent are owned by those who own 10 or fewer properties. So the GSEs cover 85 percent of the single-family rental market by extending loans to small investors through single-family financing. Of the remaining 15 percent, 5 percent is estimated to be owned by players with over 50 units, and just 1 percent is owned by institutional SFR investors with more than 1,000 properties.

Institutional investors, such as Invitation Homes, entered the SFR market in 2011. Entities raised funds and purchased thousands of foreclosed homes at rock-bottom prices and rented them out to meet the growing demand for rental housing. Then, they built the expertise, platforms, and infrastructure to manage scattered-site rentals. Changes in the business model have required these entities to search for financing alternatives.(1-2, citations omitted)

The paper concludes that “Invitation Homes was an important first transaction—it allowed Fannie Mae to learn about the institutional single-family rental market by partnering with an established player.” (9) It also notes a number of open questions for this growing segment of the rental market: should there be affordability requirements that apply to GSE financing of SFRs and should SFRs count toward meeting GSEs’ affordable housing goals?

That there would be an institutional SFR market sector was inconceivable before the financial crisis. The fire sale in houses during the Great Recession created an opening for institutional investors to enter the single-family rental market.  It is now a small but growing part of the overall rental market. It is important that policy makers get ahead of the curve on this issue because it is likely to effect big changes on the entire housing market.

This Is What GSE Reform Looks Like

Scene from Young Frankenstein

The Federal Housing Finance Agency’s Division of Conservatorship release an Update on Implementation of the Single Security and the Common Securitization Platform. As I had discussed last week, housing finance reform is proceeding apace from within the FHFA notwithstanding assertions by members of Congress that they will take the lead on this. The Update provides some background for the uninitiated:

The Federal Housing Finance Agency’s (FHFA) 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac includes the strategic goal of developing a new securitization infrastructure for Fannie Mae and Freddie Mac (the Enterprises) for mortgage loans backed by 1- to 4-unit (single-family) properties. To achieve that strategic goal, the Enterprises, under FHFA’s direction and guidance, have formed a joint venture, Common Securitization Solutions (CSS). CSS’s mandate is to develop and operate a Common Securitization Platform (CSP or platform) that will support the Enterprises’ single-family mortgage securitization activities, including the issuance by both Enterprises of a common single mortgage-backed security (to be called the Uniform Mortgage-Backed Security or UMBS). These securities will finance the same types of fixed-rate mortgages that currently back Enterprise-guaranteed securities eligible for delivery into the “To-Be-Announced” (TBA) market. CSS is also mandated to develop the platform in a way that will allow for the integration of additional market participants in the future.

The development of and transition to the new UMBS constitute the Single Security Initiative. FHFA has two principal objectives in undertaking this initiative. The first objective is to establish a single, liquid market for the mortgage-backed securities issued by both Enterprises that are backed by fixed-rate loans. The second objective is to maintain the liquidity of this market over time. Achievement of these objectives would further FHFA’s statutory obligation and the Enterprises’ charter obligations to ensure the liquidity of the nation’s housing finance markets. The Single Security Initiative should also reduce the cost to Freddie Mac and taxpayers that has resulted from the historical difference in the liquidity of Fannie Mae’s Mortgage-Backed Securities (MBS) and Freddie Mac’s Participation Certificates (PCs). (1, footnote omitted)

This administratively-led reform of Fannie and Freddie is not necessarily a bad thing, particularly because the executive and legislative branches have not taken up reform in any serious way since the two companies entered conservatorship in 2008. While Congress could certainly step up to the plate now, it is worth understanding just how far along the FHFA is in its transformation of the two companies:

Upon the implementation of Release 2, CSS will be responsible for bond administration of approximately 900,000 securities, which are backed by almost 26 million home loans having a principal balance of over $4 trillion. CSS’S responsibilities related to security issuance, security settlement, bond administration and disclosures were described in the September 2015 Update on the Common Securitization Platform. The Enterprises and investors, along with home owners and taxpayers, will rely on the operational integrity and resiliency of the CSP to ensure the smooth functioning of the U.S. housing mortgage market. (8)

That is, upon the implementation of Release 2, the merger of Fannie and Freddie into Frannie will be complete.

New Landlord in Town

Lionel Barrymore as Mr. Potter in "It's A Wonderful Life"

Lionel Barrymore as Mr. Potter in “It’s A Wonderful Life”

Bloomberg quoted me in Wall Street, America’s New Landlord, Kicks Tenants to the Curb. It opens,

On a chilly December afternoon in Atlanta, a judge told Reiton Allen that he had seven days to leave his house or the marshals would kick his belongings to the curb. In the packed courtroom, the truck driver, his beard flecked with gray, stood up, cast his eyes downward and clutched his black baseball cap.

The 44-year-old father of two had rented a single-family house from a company called HavenBrook Homes, which is controlled by one of the world’s biggest money managers, Pacific Investment Management Co. Here in Fulton County, Georgia, such large institutional investors are up to twice as likely to file eviction notices as smaller owners, according to a new Atlanta Federal Reserve study.

“I’ve never been displaced like this,” said Allen, who said he fell behind because of unexpected childcare expenses as his rent rose above $900 a month. “I need to go home and regroup.”

Hedge funds, large investment firms and private equity companies helped the U.S. housing market recover after the crash in 2008 by turning empty foreclosures from Atlanta to Las Vegas into occupied rentals.

Now among America’s biggest landlords, some of these companies are leaving tenants like Allen in the cold. In a business long dominated by mom-and-pop landlords, large-scale investors are shifting collections conversations from front stoops to call centers and courtrooms as they try to maximize profits.

“My hope was that these private equity firms would provide a new kind of rental housing for people who couldn’t — or didn’t want to — buy during the housing recovery,” said Elora Raymond, the report’s lead author. “Instead, it seems like they’re contributing to housing instability in Atlanta, and possibly other places.”

American Homes 4 Rent, one of the nation’s largest operators, and HavenBrook filed eviction notices at a quarter of its houses, compared with an average 15 percent for all single-family home landlords, according to Ben Miller, a Georgia State University professor and co-author of the report. HavenBrook — owned by Allianz SE’s Newport Beach, California-based Pimco — and American Homes 4 Rent, based in Agoura Hills, California, declined to comment.

Colony Starwood Homes initiated proceedings on a third of its properties, the most of any large real estate firm. Tom Barrack, chairman of U.S. President-elect Donald Trump’s inauguration committee, and the company he founded, Colony Capital, are the largest shareholders of Colony Starwood, which declined to comment.

Diane Tomb, executive director of the National Rental Home Council, which represents institutional landlords, said her members offer flexible payment plans to residents who fall behind. The cost of eviction makes it “the last option,” Tomb said. The Fed examined notices, rather than completed evictions, which are rarer, she said.

“We’re in the business to house families — and no one wants to see people displaced,” Tomb said.

According to a report last year from the Harvard Joint Center for Housing Studies, a record 21.3 million renters spent more than a third of their income on housing costs in 2014, while 11.4 million spent more than half. With credit tightening, the homeownership rate has fallen close to a 51-year low.

In January 2012, then-Federal Reserve Chairman Ben Bernanke encouraged investors to use their cash to stabilize the housing market and rehabilitate the vacant single-family houses that damage neighborhoods and property values.

Now, the Atlanta Fed’s own research suggests that the eviction practices of big landlords may also be destabilizing. An eviction notice can ruin a family’s credit and make it more difficult to rent elsewhere or qualify for public assistance.

Collection Strategy?

In Atlanta, evictions are much easier on landlords. They are cheap: about $85 in court fees and another $20 to have the tenant ejected, according to Michael Lucas, a co-author of the report and deputy director of the Atlanta Volunteer Lawyers Foundation. With few of the tenant protections of places like New York, a family can find itself homeless in less than a month.

In interviews and court filings, renters and housing advocates said that some investment firms are impersonal and unresponsive, slow to make necessary repairs and quick to evict tenants who withhold rent because of complaints about maintenance. The researchers said some landlords use an eviction notice as a “routine rent-collection strategy.”

Aaron Kuney, HavenBrook’s former executive director of acquisitions, said the companies would rather keep their existing tenants as long as possible to avoid turnover costs.

But “they want to get them out quickly if they can’t pay,” said Kuney, now chief executive officer of Piedmont Asset Management, a private equity landlord in Atlanta. “Finding people these days to rent your homes is not a problem.”

Poor Neighborhoods

The Atlanta Fed research, based on 2015 court records, marks an early look at Wall Street’s role in evictions since investment firms snapped up hundreds of thousands of homes in hard-hit markets across the U.S.

Researchers found that evictions for all kinds of landlords are concentrated in poor, mostly black neighborhoods southwest of the city. But the study found that the big investors evicted at higher rates even after accounting for the demographics of the community where homes were situated.

Tomb, of the National Rental Home Council, said institutional investors at times buy large blocks of homes from other landlords and inherit tenants who can’t afford to pay rent. They also buy foreclosed homes whose occupants may refuse to sign leases or leave.

Those cases make the eviction rates appear higher than for smaller landlords, according to Tomb, whose group represents Colony Starwood, American Homes 4 Rent and Invitation Homes. The largest firms send notices at rates similar to apartment buildings, which house the majority of Atlanta renters.

Staying Home

Not all investment firms file evictions at higher rates. Invitation Homes, a unit of private equity giant Blackstone Group LP that is planning an initial public offering this year, sent notices on 14 percent of homes, about the same as smaller landlords, records show. In Fulton County, Invitation Homes works with residents to resolve 85 percent of cases, and less than 4 percent result in forced departures, according to spokeswoman Claire Parker.

The Fed research doesn’t say why many institutional investors evict at higher rates. It could be because their size enables them to negotiate less expensive legal rates and replace renters more quickly than mom-and-pop operators.

“Lots of small landlords, when they have good tenants who don’t cause trouble, they’ll work with someone who has lost a job or can’t pay for the short term,” said David Reiss, a Brooklyn Law School professor who specializes in residential real estate.

The Housing Market Under Trump

photo by http://401kcalculator.org

TheStreet.com quoted me in Interest Rates Likely to Rise Under Trump, Could Affect Confidence of Homebuyers. It opens,

Interest rates should increase gradually during the next four years under a Donald Trump administration, which could dampen growth in the housing industry, economists and housing experts predict.

The 10-year Treasury rose over the 2% threshold on Wednesday for the first time in several months, driving mortgage rates higher with the 30-year conventional rate rising to 3.73% according to Bankrate.com. Mortgage pricing is tied to the 10-year Treasury.

Housing demand will remain flat with a rise in interest rates as many first-time homebuyers will be saddled with more debt, said Peter Nigro, a finance professor at Bryant University in Smithfield, R.I.

“With first-time homebuyers more in debt due to student loans, I don’t expect much growth in home purchasing,” he said.

Interest rates will also be affected by the size of the fiscal stimulus since additional infrastructure spending and associated debt “could push interest rates up through the issuance of more government debt,” Nigro said.

Even if interest rates spike in the next year, banks will not benefit, because there is a lack of demand, said Peter Borish, chief strategist with Quad Group, a New York-based financial firm. The economy is slowing down, and consumers have already borrowed money at very “cheap” interest rates, he said.

The policies set forth by a Trump administration will lead to contractionary results and will not spur additional growth in the housing market.

“I prefer to listen to the markets,” Borish said. “This will put downward pressure on the prices in the market. Everyone complained about Dodd-Frank, but why is JPMorgan Chase’s stock at all time highs?”

An interest rate increase could still occur in December, said Jonathan Smoke, chief economist for Realtor.com, a Santa Clara, Calif.-based real estate company. With nearly five weeks before the December Federal Open Market Committee (FOMC) meeting, the market can contemplate the potential outcomes.

“While the market is now indicating a reduced probability of a short-term rate hike at that meeting, the Fed has repeatedly indicated that they would be data-driven in their decision,” he said in a written statement. “If the markets calm down and November employment data look solid on December 2, a rate hike could still happen. The market moves yesterday are already indicating that financial markets are pondering that the Trump effect could be positive for the economy.

“The Fed is likely to start increasing the federal funds rate at a “much faster pace starting next year,” said K.C. Sanjay, chief economist for Axiometrics, a Dallas-based apartment market and student housing research firm. “This will cause single-family mortgage rates to increase slightly, however they will remain well below the long-term average.”

Since Trump has remained mum on many topics, including housing, predicting a short-term outlook is challenging. One key factor is the future of Fannie Mae and Freddie Mac, who are the main players in the mortgage market, because they own or guarantee over $4 trillion in mortgages, remain in conservatorship and “play a critical role in keeping mortgage rates down through the now explicit subsidy or government backing which allows them to raise funds more cheaply,” Nigro said.

It is unlikely any changes will occur with them, because “Trump has not articulated a plan to deal with them and coming up with a plan to deal with these giants is unlikely,” he said.

Trump could attempt to take on government sponsored enterprises such as Fannie Mae and Freddie Mac, said Ralph McLaughlin, chief economist for Trulia, a San Francisco-based real estate website.

“If he does, it’s going to be a hairy endeavor for him, because he’ll need bipartisan support to do so,” he said.

Since he has alluded to ending government conservatorship and allowing government sponsored enterprises to “recapitalize by allowing retention of their own profits instead of passing them on to the Treasury,” the result is that banks could have their liquidity and lending activity increase, which could help boost demand for homes, McLaughlin said.

“We caution President-elect Trump that he would also need to simultaneously help address housing supply, which has been at a low point over the past few years,” he said. “The difficulty for him is that most of the impediments to new housing supply rest and the state and local levels, not the federal.”

Even on Trump’s campaign website, there is “next to nothing” about his ideas on housing, said David Reiss, a law professor at the Brooklyn Law School in New York. The platform of the Republican Party and Vice President-elect Mike Pence could mean that the federal government will have a smaller footprint in the mortgage market.

“There will be a reduction in the federal government’s guaranty of mortgages, and this will likely increase the interest rates charged on mortgages, but will reduce the likelihood of taxpayer bailouts,” he said. “Fannie and Freddie will likely have fewer ties to the federal government and the FHA is likely to be limited to the lower end of the mortgage market.”