Nov. 1: Thoughts on GSE privatization, owing their own securities, and watching lender/vendor collaboration; vendor updates
In “the old days,” mortgage staff would look forward to the bowl of leftover candy on the underwriter’s desk or lunchroom after Halloween. But now, with many working remotely, who knows? Today is November 1st, and the Day of the Dead is a holiday traditionally celebrated on November 1 and 2 in Hispanic cultures, though other days, such as October 31 or November 6, may be included depending on the locality. The multi-day holiday involves family and friends gathering to pay respects and remember friends and family members who have died, often celebrating their humor. It makes a lot of sense. For fans of the non-living, on another continent, Japan a) has a tight labor market, and b) loves 24-hour convenience stores. The demand, and pay, for night clerks has skyrocketed, leading to remotely operated robots. (A tie-in to residential lending? Or not.) One Tokyo-based startup, Telexistence, has deployed machines in 300 Tokyo stores. These machines are operated 24/7 out of Manila! The tele-operators working for Astro Robotics in the Philippines monitor about 50 robots at a time, earning $250 to $315 per month to control the robots operating in Japan’s convenience stores.
Freddie and Fannie: stay away from private profits and public risk
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Last Saturday the Commentary had an explanation of why releasing the Agencies/GSEs/Freddie and Fannie is so difficult from a legal and financial perspective. The piece prompted David Henry to scribe, “Hi Rob: I really enjoyed this one. Many years ago (long before the 2008 problems), I wrote to my congress people to privatize Fannie and Freddie. Instead, they ‘weaponized’ them to force seller/servicers to make poor quality loans. The wrong-headed thinking (hindsight is always 20/20) was that everybody should own their own home and housing values never go down.
“Private: If we could somehow get them into ‘private’ ownership mode, we should also remember the great lesson of 2008: Private profits and public risk are a recipe for disaster. If they go private, then they should go private ‘all-in’ with no implied government backstops. Let the shareholders bear the risk. Also, for the sake of competition, it would be good to take both Fannie and Freddie (separately) into the hands of private shareholders.
“Public: If they do not take them private, then I’d say just boil them down into one entity. We do not need the duplication of both entities. In fact, we should look at rolling them up under Ginnie. Let Ginnie provide the ‘full faith and credit’ of the US Government, in return for their guaranty. It might have to be more than 6 bps, but I’d bet it would still be less than the G-fees currently charged by Fannie and Freddie. It might require an exit from a lot of the activities that Fannie and Freddie currently run (activities other than a simple guaranty program).”
David finished up with, “The US’ housing finance system is the envy of the planet. I hope we can get this figured out. One thing I’m pretty sure of: Private enterprise will be better than Congress running the show.”
Freddie and Fannie: should they buy their own securities?
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Christopher Whalen, Chairman, Whalen Global Advisors LLC writes, “A coalition of real estate and banking groups, including the Community Home Lenders of America and the Independent Community Bankers of America, wants Fannie Mae and Freddie Mac to buy conventional mortgage-backed securities to help the mortgage market.
“In a letter to the Treasury, these groups proposed temporarily giving the government-sponsored enterprises the ability to buy their own MBS and Ginnie Mae MBS to reduce mortgage rates. Even though conventional mortgage rates are touching 6 percent and industry volumes are surging, these and other groups believe more needs to be done. But others disagree.
"’No,’ said Alex Pollock, senior fellow at the Mises Institute, who was president and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004. ‘The government, whether in the form of the Fed or the GSE, should not be buying MBS.’ Pollock notes that the Fed has lost hundreds of billions of dollars on its investment in MBS.”
Mr. Whalen went on. “On its face, the idea of Fannie Mae and Freddie Mac buying back their own mortgage debt makes little sense, especially given that interest rates are falling and lending volumes are rising. Conventional 30-year fixed rate mortgages are nearing 6 percent, VA loans are well into the 5s, and the industry is going to have a good quarter in Q4 and an even better 2026. Moreover, to the key point made by advocates, mortgage spreads have come in to 1.3 percent vs 1.7 percent at the start of '25, as shown in the chart below from the St Louis Fed. This chart shows the 30 year FRM minus the yield on the ten-year Treasury.
“There are two significant operational constraints to the GSEs growing their balance sheets further in the near-term. The first is the Preferred Stock Purchase Agreement cap. Most Washington observers tell National Mortgage News that they don't see any way that would be lifted, but the GSEs each have about $100B in headroom. Yet there is probably enough institutional memory at Treasury to push back against any effort to significantly increase GSE portfolios.
“The second more important issue is that the GSEs have not significantly reinvested in the personnel and infrastructure necessary to manage a larger balance sheet, including hedging the portfolios of MBS on a larger scale. Both of the GSEs have suffered significant attrition in recent years, thus it is an open question whether either of the enterprises could rebuild that capacity.
Moreover, given the extent of change in the executive ranks at both enterprises, asking the GSE to start to retain loans and/or repurchase existing MBS would take away focus from the day-to-day priorities of providing a market for conventional loans. Investors in GSEs shares might also react negatively to the proposal.
“It is interesting to note from a policy perspective that the mortgage industry has consistently been against larger GSE portfolios other than for aggregation, buyouts of delinquent loans, and perhaps some minimal incubation of smaller products.
“’The potential costs from the increased liquidity risk and interest rate risk from larger portfolios likely outweigh any gain from modestly tighter spreads,’ notes one senior industry executive. ‘It's just not a good tradeoff for the industry as a whole.’ Another mortgage CEO points to the massive losses sustained by the Federal Reserve Board by purchasing trillions in MBS during and after COVID.
“Of course, part of the reason that some advocate having the GSEs retain mortgage loans and MBS rather than selling these assets to investors is because the Federal Reserve Board is currently a net seller. During the Fed's massive purchases of Treasury and mortgage collateral between 2020 and 2023, mortgage rates were extremely low and spreads between loans and the 10-year Treasury were well below 1 percent.
“Even when the Fed eventually ends the process of shrinking the balance sheet of the central bank, the runoff of MBS from the Fed's system open market account (SOMA) will be replaced with Treasury bills rather than new mortgage assets. The Fed is currently reducing its MBS holdings at a rate of up to $35 billion per month, but the actual runoff in terms of prepayments is half that amount.
“In October 2025, Fed Chairman Jerome Powell stated that the Fed would consider ending its balance sheet runoff, including the reduction of its mortgage-backed securities holdings, in the coming months. He affirmed that the Fed would not use MBS purchases as a tool to directly target mortgage rates or housing, a policy he maintained would remain outside the Fed's mandate despite a large amount of MBS on the balance sheet.
“Some of the candidates to replace Powell at the Fed have been talking about active sales of MBS to purge the Fed balance sheet of troublesome MBS. Investors continue to be wary about outright sales from the SOMA, but even if they head in that direction, sales of MBS would be designed to NOT disturb the market.
“One could make an argument that the GSEs could stand ready to offset the risk of any MBS sales by a new, more conservative FOMC. Kevin Warsh, a candidate for Federal Reserve Chairman, has previously advocated for the outright sale of the Fed's MBS. This would represent a more aggressive approach to shrinking the central bank's balance sheet than current policy.
“Warsh, who was a member of the Fed board during the 2008 financial crisis, supported the initial asset purchases but has since argued that the Fed should stop holding these assets now that the crisis is long past. At the current prepayment rate for MBS in the SOMA, it will take two decades to get MBS holdings below $500 billion, notes the ABA Banking Journal.
"’The Fed has capped the pace of MBS paydowns at $35 billion a month to avoid market disruptions, while actual monthly paydowns… have been running closer to $15 billion,’ notes Jeff Huther. ‘Since the Fed views the $35 billion a month paydown pace as non-disruptive, it could use that number as a basis for sales.’ But Fed officials badly want to be rid of the MBS held by the central bank to end the massive operating losses caused by these low-coupon, COVID-era securities.”
Chris wrapped up. “’If policymakers believe financial markets are so distorted in their pricing of mortgage securities that intervention is needed, MBS purchases are better suited to a federal entity such as the Fed,’ notes Edward DeMarco, President of the Housing Policy Council. DeMarco was acting director of the Federal Housing Finance Agency from 2009 to 2014, where he served as the conservator for Fannie Mae and Freddie Mac. ‘The irony, however, is that today we are living with the consequences of the last such intervention by the Fed, which Chairman Powell acknowledged was allowed to go on for too long.’” Thank you, Chris!
Freddie and Fannie: are they watching collaboration in the ranks?
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Collaboration is alive and well, and I received this note from Canopy Mortgage’s Jeff Reeves.
“We’ve been working on a product with The Work Number and Finicity which has attracted the attention of the Agencies, and rightly so because of the potential demand for it. We all hope that AI will reverse the painful trend of rising origination costs. But before we spend another dollar on futuristic tech, we need to be much better at leveraging the tech we already have.
“Consider, for example, the VOIs and VOAs we get from vendors like The Work Number (TWN) or Finicity. The potential benefits, from fraud prevention to underwriting certainty to a vastly easier process for borrowers, are enormous. Yet, when you consider the number of reports we order for pre-qualifications or pre-approvals that never close, the cumulative cost of these products has become an expensive deterrent that prevents lenders from introducing such direct-source verification data much earlier into the origination process.
“Fortunately, some vendors are innovating to solve this problem. At Canopy Mortgage, we’re currently beta-testing a new TWN product (Mortgage Qualify), a trimmed-down report, analogous to a ‘soft’ credit pull, that still provides sufficient data to make a preliminary decision at a dramatically lower cost than a full TWN report. Other vendors, like Finicity, are considering similar ‘Pre-qual Only’ products. They just need GSE support to make it happen.
“This lower-cost model is only sustainable if the verification providers and the GSEs (Fannie Mae’s DU and Freddie Mac’s LPA) work together to make it happen. Specifically, DU and LPA need to be able to accept a flag in the dataset they receive from such vendors that the submitted report is a ‘Pre-qual Only’ report. They would then output a finding that explicitly requires lenders to obtain a ‘hard’ or ‘full’ report prior to closing.
“Such a system will allow lenders to adopt a verification-first origination strategy for a fraction of the cost while still encouraging the ordering of ‘hard’ reports when they have a real loan. A verification-first approach to origination is key to breaking the cycle of doing business the same old way we've been doing it for decades.
“Like all of us, Fannie and Freddie have limited resources, and they need to know what matters most to their customers. So, before the entire industry pivots to the next generation of AI, let’s encourage our fellow lenders and the GSEs to fully optimize the tools currently in hand, starting with adding support for ‘Pre-qual Only’ verification reports.”
Service provider/vendor products
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There are some snazzy programs and software for lenders in both the primary (dealing with borrowers) and secondary (dealing with investors) markets. Let’s take a random look at who’s doing what out there, in no particular order.
By the way, the Chrisman Marketplace has become the centralized hub for vendors and service providers across the mortgage industry to be viewed by lenders in a very cost-effective manner. To reserve your place or learn more, contact Jake at info@chrismancommentary.com.
ZestyAI, the leading provider of AI-powered property and climate risk analytics, announced that its non-weather water risk model, Z-WATER™, has received approval in Wisconsin for use in underwriting and writing. Non-weather water is one of the costliest and fastest-growing perils in homeowners insurance, now ranking as the fourth costliest peril overall, with claim severity up 80% over the past decade surpassing hurricanes. Insurers in Wisconsin can begin using Z-WATER to set more accurate, property-specific rates, align coverage with actual home vulnerabilities, optimize inspections and mitigation strategies, such as the adoption of water sensors, and reduce cross-subsidization and improve portfolio performance.
Lenders are under pressure to balance secondary marketing efficiency with borrower experience. Dark Matter Technologies’s (DMT) Empower LOS platform integration with Polly’s advanced product, pricing and eligibility (PPE) engine helps on both fronts. By bringing Polly’s granular pricing optimization and automated lock workflows directly inside the Empower LOS, lenders can streamline operations without having to leave their LOS. That means faster execution, less friction for teams, and more flexibility to compete in today’s market.
LoanLogics, a leader in due diligence, audit software, and automation solutions for the mortgage industry, announced the launch of LoanBeam NQM™ to transform income analysis for non-qualified mortgage (non-QM) loans from a labor-intensive manual task into fast, accurate, and compliant workflows. LoanBeam NQM™ automates bank statement analysis for non-QM loans, resulting in lower per-loan processing costs and more accurate data validation, ensuring reliable calculations. The platform’s built-in quality controls, NSF tracking, and audit trails also protect the lender pipeline.
Incenter Lender Services (Incenter) launched the Incenter CRA Exchange Platform, a first-of-its-kind, one-stop “matchmaking solution” exclusively focused on trading CRA (Community Reinvestment Act)-qualified and fair lending loans. The new national exchange, complimentary for banks, IMBs (independent mortgage banks) and credit unions to join, dramatically streamlines current trading and transfer processes and elevates the standard for best execution in CRA-qualified loan sales. Developed with e11tec and Watermark TPO, a division of Watermark Capital, Inc., the platform is the latest Incenter innovation to improve lenders and depositories financial performance by removing operational roadblocks and increasing revenue-generating opportunities. Becoming part of the platform, and taking advantage of opportunities year-round, is seamless and requires no technology integration.
Okay, instead of the usual humor here’s something on the more serious side, especially for those junior high kids taking biology: how long does a bed bug live? Here’s a video with lifespans of animals we all know, like dogs and house flies.