Here we were just bemoaning the drying up of the UK mortgage market and pondering the lack of “state-sponsored” market lubricant in the manner of the US’s Fannie and Freddie. The body that represents Europe’s mortgage lenders is apparently doing the same.
The Brussels-based European Mortgage Federation intends to reopen discussions on whether the region should have its own Fannie or Freddie lookalike, operating at EU level, as part of a re-evaluation of the functioning of the region’s mortgage markets.
European legislation prohibits state-backed companies from operating in Europe’s mortgage markets – except under Crock-like crisis circumstances. But the idea of a European Freddie has arisen before. Last considered several years ago, says Secretary General of the EMF Annik Lambert, the idea was dismissed as Europe’s lenders rode a booming market.
The US government-sponsored enterprises, the GSEs, have their roots in the Great Depression, and are playing an ever-increasing role in the mortgage industry as private sources of finance dry up for many lenders. The current crisis in the mortgage market has prompted some in the industry to suggest that now is the time to reexamine the potential for a body with a similar function in Europe, Lambert adds.
The role of the Federal Home Loan Boards, the lesser-known (or less memorably-named) near-relatives of Fannie and Freddie, in pumping funds into the US mortgage market has attracted attention among European policymakers, the FT said back in December. The UK and Europe, it was thought, had imported the the securitised funding model of US mortgage finance without the quasi-public safety net provided under the US system.
Developments in credit and mortgage markets may have prompted European lenders to yearn for such a support. But they’re likely to be disappointed. The US GSEs have grown from the Depression era, and while not part of the public sector per se they are perceived to have implicit government backing. How could this delicate balance be replicated? In addition, the idea of a de facto state-backed mortgage financier operating at a pan-EU level sounds fiendishly complicated (read borderline unachievable) and replete with the ‘moral hazard’ concerns that dog so many aspects of this credit squall.
Related links
Interactive guide to the GSEs – FT.com
Bank co-ops keep US afloat – FT.com