Government backstop grows to 98% of new financing in residential mortgage-bond market during pandemic

The U.S. government has guaranteed nearly all new home loans in the $11 trillion housing debt market in the months since the coronavirus tool hold across American, a situation that isn’t likely to change soon, according to Barclays.

For decades, the majority of all U.S. home loans have ended up bundled into mortgage-backed securities that are sold to investors like pension funds, either with or without government backing, rather than kept by lenders.

Government backstops have become the norm in the decade since the 2007-08 global financial crisis, which was fueled by a boom in subprime mortgages and exotic financial products. But many industry participants have hoped to see private-sector players take a bigger slice of the pie, to spread the risk, encourage new entrants and lessen the government’s dominant role in the mortgage-finance supply chain.

This chart shows the share of residential mortgage bonds sold with government guarantees from housing giants Freddie Mac FMCC, , Fannie Mae FNMA, and Ginnie Mae falling as low as 30% of all new home loans in 2005, but shooting past 90% in recent years.

One major piece of unfinished business since the financial crisis, which saw millions of homes lost to foreclosure, has been figuring out how to safely bring more private capital back into U.S. housing finance, while easing taxpayer exposure to mortgages.

To that end, the Trump administration has vowed to revive efforts to privatize Freddie and Fannie, some 12 years since they were bailed out by taxpayers. Earlier in May, steps in that direction were taken with the unveiling of a new framework for the privatization of Freddie and Fannie, including a proposal to require the housing giants to keep a more than $200 billion capital buffer.

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