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Fannie and Freddie Increase Market Share

During the third quarter, Fannie Mae and Freddie Mac purchased $342.3 billion in mortgages and mortgage-backed securities, up about 3 percent from the prior quarter, according to calculations by Inside Mortgage Finance.

Those purchases accounted for roughly 60 percent of the $570 billion in total loan originations during the third quarter, marking a sizable increase to the firms 37 percent total market share last year.

The combined market share of the two government-sponsored entities is now higher than the 57 percent share recorded in 2003, before the housing boom was realized.

Meanwhile, loan origination industry-wide dipped 22 percent from the second quarter and almost 25 percent from the third quarter a year ago.

“What the trend really highlights is the demise of…some of these nontraditional mortgage markets which rose to prominence starting in 2004,” Guy Cecala, publisher of Inside Mortgage Finance, said today. “It’s not really that Fannie and Freddie did anything to warrant this.”

The secondary market collapse has made it very difficult for smaller mortgage lenders without in-house funding to originate non-conforming loans, as demand for the mortgage-backed securities has shriveled to near non-existence over the last several months.

“The shakeout that’s taken place in the mortgage market has clearly demonstrated the need for and the strength of” the GSE’s, Freddie Mac spokesman Michael Cosgrove said.

Cosgrove noted that his company is benefiting from a return to conventional 15-year and 30-year fixed-rate loans, as adjustable-rate mortgages continue to fall out of fashion.

Recently, the Office of Federal Housing Enterprise Oversight eased the caps on Fannie Mae and Freddie Mac marginally, but the GSE’s had been looking for a portfolio increase of at least 10 percent.

Democratic senators have also lobbied for a provisional increase to the conforming loan limit, currently set at $417,000 for single-family residences, though Fed Chief Bernanke and the Bush Administration were strongly opposed.

Two weeks ago, the OFHEO released the proposed 2008 conforming loan limit guidance, which should be announced late next month.

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