Feb 28 - The two U.S. housing government sponsored entities (GSEs), Fannie
Mae and Freddie Mac, continue to play a key role in the U.S.
housing market recovery, thus limiting the motivation for wide-reaching GSE
reforms in the near future, according to a Fitch Ratings report.
Fitch notes that both companies have shown operating performance improvements
during the first nine months of 2012. These improvements are primarily driven by
the high-quality business written since 2008, a recovery in housing prices, and
a more stable interest rate environment.
Incentivizing private investors to reenter the mortgage market remains an
ongoing focus for regulators and politicians. Fitch notes, however, that results
have been disappointing, as nine out of 10 mortgages still have some form of
government backing. Uncertainty regarding risk retention and bank capital rules
continues to be an important constraint and private appetite for mortgage assets
is likely to remain muted.
Increasing guarantee fees (g-fees), a trend Fitch expects to continue in 2013,
is one of the more straightforward ways to attract private capital into the
mortgage market. However, Fitch believes that g-fees may need to rise materially
before non-agency execution becomes a convincingly viable alternative.
Fitch affirmed its 'AAA' ratings on Fannie Mae and Freddie Mac and maintained a
Negative Outlook in November, 2012. The ratings for both entities are directly
linked to the U.S. sovereign rating, based on the government's direct financial
The GSEs remain regular issuers in the capital markets, benefiting from the
implicit U.S. guarantee and ongoing explicit acts of financial support from the
government. Fitch believes that the recent improvements in credit and financial
performance make it less likely the GSEs will require material support from the
Treasury going forward.
The full report 'U.S. Housing Finance GSEs: Where to From Here' is available at
Additional information is available at 'www.fitchratings.com'.
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