Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Banks

Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Property

Zoopla wins back customers from online property rival

Zoopla chief executive Alex Chesterman has branded rival OnTheMarket “a failed experiment”, and said that his property site was winning back customers at a record rate. OnTheMarket was set up last year, aiming to compete with Zoopla and Rightmove, the UK’s two biggest property portals. It allowed estate agents to list their properties more cheaply […]

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Financial

Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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Banks

BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Categorized | Property

Fitch warns on US housing finance reform


Posted on February 28, 2013

The profitability and dominance enjoyed by US-backed mortgage giants Fannie Mae and Freddie Mac will limit policy makers’ motivation for winding them down, Fitch Ratings has said.

The warning comes as appetite to transform the state-backed companies into private sector entities wanes in Washington, where wrangling over budget, insurance and tax issues is likely to dominate the legislative calendar in the months to come.

    The Obama administration two years ago outlined three options to reform the US government’s role in funding residential property. Since then Treasury officials have described conditions that must be met when fashioning a reform of the US housing finance system, but they have declined to settle on a specific plan.

    Members of Congress have introduced legislation to wind down Fannie Mae and Freddie Mac and set up a new system to fund home mortgages, but those bills have gone nowhere.

    With the US housing sector in recovery, Fannie Mae and Freddie Mac are enjoying record profits thanks to rising home prices and stricter underwriting that has led to fewer defaults.

    On Thursday, Freddie Mac reported $4.5bn in net fourth-quarter income, raising its full-year earnings in 2012 to $11.0bn. It posted a $5.3bn net loss in 2011.

    The White House is expected to state in annual budget documents to be made public in the coming weeks that Fannie Mae and Freddie Mac will be profitable enough in the coming years to begin helping to reduce the federal budget deficit, observers say.

    Reforming the companies in a way in which their profits do not flow to US taxpayers, therefore, would be seen as increasing the deficit.

    That could further sap the need for reform, say some lawmakers who wish to reform the companies and lessen the role of the state in backing home mortgages.

    In a report on Thursday, Fitch claimed that the fact that Fannie Mae and Freddie Mac continue to play a key role in financing home mortgages limits the political motivation to pursue “far-reaching” reforms.

    More than nine of every 10 new home mortgages is backed by the US government. About half of all new home loans are backed by Fannie Mae and Freddie Mac.

    The rating agency added that uncertainty over pending proposed rules governing lending practices and bank capital “continues to be an important constraint and private appetite for mortgage assets is likely to remain muted”, thus strengthening the case for why Fannie Mae and Freddie Mac will continue to dominate US housing finance in the near-term.