Fitch: GSEs Play Dominant Market Role Amid Political Uncertainty

NEW YORK–(BUSINESS WIRE)–

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 support.

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 ‘www.fitchratings.com.’

Additional information is available at ‘www.fitchratings.com‘.

Applicable Criteria and Related Research U.S. Housing Finance GSEs:
Where to from Here

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=700032

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