On the future market share of Fannie Mae and Freddie Mac
Gentlemen, my name is Richard Sercer from Tucson, Arizona.
I understand that 40 percent of all home mortgages have been securitized by Fannie Mae and Freddie Mac, the duopoly.
I would, at the risk of asking you for a projection, since you’ve talked about projections before, I’d be interested in understanding what you think will happen to that market share over time for this duopoly. Thank you.
Well, the answer to that doesn’t involve much of a prediction. That market share is essentially certain to go up.
That doesn’t mean that those are wonderful businesses to buy, but the market share is essentially certain to go up because the economics that those two entities possess, compared to other ways of intermediating money between investors and people who want to borrow, no one else has those economics.
So what holds the share of Freddie Mac and Fannie Mae down is the fact that they are only allowed to loan roughly $200,000 on any mortgage. That’s a limiting factor. It’s probably been a good thing for them that it has been a limiting factor, but they are shut out of part of the market.
But the market that they are in, they essentially have economics that other people can’t touch for intermediating money, including the savings and loan business that we were in.
We had a business that intermediated money, went out and got it from depositors and lent it to people who wanted to borrow on a home.
Freddie Mac and Fannie Mae do it the same way. They don’t do it exactly the same way, but they perform the same function. And they could do it so much more cheaply than we could do it by having branches or anything of the sort and paying the insurance fee we paid.
They’re going to get the business. They should get the business. And so their market share will grow.
Well, I think that’s right.
You’re doing great.
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