The Deregulation of Fannie and Freddie; Rate Cuts; “Full Stack” Banks

By Vy Phan

September 8, 2019

Greetings,

This week, the Trump administration released their long awaited housing finance plan that will privatize Fannie Mae and Freddie Mac.

The most notable, although not unexpected recommendation is to end the GSE conservatorship subject. At the same time the administration seeks to shift risk from government to the private sector by:

Encouraging the growth and competitiveness of private capital
Ensuring Fannie and Freddie are sufficiently capitalized to withstand a downturn without need of taxpayer support
Removing impediments to Private Label Securitization
Encouraging private sector competition

Many of the recommendations require support of the Democrat controlled house. The plan would require a significant recapitalization – up to $180 Bn.

The longer-term objective is to increase the role of private capital which many argue has been displaced due to the GSE’s role in the housing market. You can check out the full 53 page report here.

Single Family Mortgage Debt by Mortgage Holder

Source: Federal Reserve, PeerIQ

Markets expect the FOMC to cut rates another 25 bps when they convene in two weeks. Fed officials are not correcting market expectations.

In fundraising news, Even Financial – a company focused on providing services for search and acquisition – raised $25MM in a Citi and MassMutual dominated round of funding. Also Happy Money, the California Fintech that creates a marketplace for credit unions and consumers, raised $70M in their Series D. Their funding was led by CMFG Ventures, a division of CUNA Mutual.

One of the more thought provoking articles making the rounds asks the question of whether Amazon or Apple can develop a “full stack” bank. Both firms have an appetite to expand into financial services. Today, Amazon is prioritizing the sale of AWS services to banks and FinTechs. Apple is partnering its way into the market (see GS/Apple card) although it has made major inroads with payments (Apple Pay product). Until one of these companies acquires Square, Paypal, or a FinTech lender that has a charter application, we’re doubtful there’s a threat anytime soon.

Conferences:

PeerIQ will be attending ABS East in Miami Sep 22^nd to Sep 24^th. Shoot us a note if you’d like to catch up.

Industry Update

Trump administration releases housing finance blueprint to privatize Fannie Mae, Freddie Mac (HousingWire, 9/5/19) Discontinues rules that allowed Fannie and Freddie to sidestep regulations.
Happy Money Raises $70 Million At A Valuation Of Nearly $500 Million (Forbes, 9/5/19) California based fintech that matches up borrows with credit union lenders doubled its previous funding round, continues to search for ways to provide easy loans to consumers.
Fed Lines Up Another Quarter-Point Rate Cut (WSJ, 9/5/19) As the trade war with China progresses and intensifies, markets expect the Fed to cut rates by a quarter point when they meet in two weeks.
Even Financial raises $25 million to connect banks with channel partners (Venture Beat, 9/4/19) Company that provides services for search, acquisition, and monetization raised $25MM in a round led by Citi and MassMutual.
Can Apple Or Amazon Become Full Stack Banks? (Forbes, 9/3/19). Sounds exciting, but doubtful in the next 2 years.
How Fintech Can Make Banking More Inclusive – and Empowering (Knowledge@Wharton, 8/27/19) There is currently a lack of financial information on certain minority groups – many new developments in “frontier” fintech can help provide these individuals with live-improving financial services.
Digital Finance Forum Says UK Fintech Leadership is at Risk (Crowdfund Insider, 8/27/19) While the UK has historically been a supportive breeding ground for fintech, only one in three founders are confident that this will remain the case – with Brexit and talent finding being a chief concerns.

Lighter Fare

A Lost Japanese Village Has Been Uncovered in the British Columbia Wilderness (MSN, 9/6/19) For the past 14 years a Canadian professor and generations of students have been slowly unearthing a secret Japanese safe haven in the forests of British Columbia.