ORLANDO (Reuters) - A Blackrock fund is set to approve 10 lenders in its effort to expand into the home loan market just as the U.S. government plans to shrink support for long-time mortgage titans Fannie Mae and Freddie Mac.
One lender has just begun considering loan applications under the venture by BlackRock’s $1 billion fund, which is providing the capital behind mortgages that don’t qualify for federal guarantees, said Randy Robertson, managing director and co-head of securitized products. The goal is to package those loans into residential mortgage-backed securities.
Restoring the flow of private capital to the $11 trillion U.S. mortgage market is fueling the buzz at the conference of the American Securitization Forum, a lobbying group for the industry whose funds once provided the lion’s share of money for home buyers. Private capital has been thin since 2008 due to housing market uncertainty, increased regulation and competition from government-backed programs.
A push to reduce government funding of the mortgage market is growing as Congress and the Obama administration work to reform the system. They want to protect taxpayers who have shelled out $150 billion to cover losses at Fannie Mae and Freddie Mac, which were seized by their regulator in 2008. The administration on Friday will offer a range of proposals, an industry source told Reuters.
BlackRock will be ready to move into the market space opened as the government narrows its reach, Robertson said in an interview on Monday.
Regarding new loan originations, BlackRock “will take what the market is able to produce that meets our quality guidelines,” he told Reuters at the conference.
“It’s still unclear what housing reform will look like,” he added. “But most people have the conclusion government participation will be smaller, not larger” and private capital must fill the void, he said.
The mortgage market in 2010 was 88 percent dominated by government funding or guarantees, according to Inside Mortgage Finance. Market share was as little as 30 percent in 2006 after lenders loosened underwriting to boost volume and feed demand for private-label mortgage bonds.
As mortgage bonds have created mayhem for the financial markets, BlackRock wanted a new model. Previous weaknesses, including sloppy loan documentation and conflicts of interest when the same bank is originator and servicer, would be resolved in the new securitizations.
Investors say unfair treatment has been a factor in the lack of private capital entering the housing market, which is foundering in part due to lack of credit. Only one mortgage bond backed by new loans has been sold since the $1.5 trillion private-label market came to a screeching halt in 2008.
Most ASF members surveyed ahead of the conference said BlackRock and other non-bank issuers such as Redwood Trust would share the private mortgage bond stage with the older model of lenders securitizing their own assets.
Mortgages funded via BlackRock capital are in the so-called “jumbo” loan market that has shrunk, being outside the reach of government guarantee programs. Congress has temporarily raised the limit of eligible loans to around $730,000, but is likely to let it drop to encourage private competition.
“Jumbo product is where it is,” said Sue Allon, chief executive officer of Denver-based Allonhill, a mortgage risk and due diligence firm. “Investors are lining up because as soon as the market warms up they will be onto other products.”
Demand for capital still isn’t large now as foreclosures are creating a new downdraft to home prices nationally, said Robertson, who agreed with several Wall Street predictions for another 5 percent to 10 percent depreciation.
What’s more, “it’s been a tough winter,” he said, of frequent storms across the nation. “To get a good indication of what volume trends look like, we’ll have to wait until May and see the data . Demand should pick up as people typically relocate during the summer months.”
Additional reporting by Corbett B. Daly in Washington; Editing by Andrew Hay