In short, the mortgage banks were one of the prime sources of securitization. Properly done, securitization is a good thing, and if the buyers, rather than the sellers, assess the risks, then there's some chance it could work again. But it's far from clear that the mechanisms are in place for banks to assess these risks. The lack of warehouse capital itself should be a sign that those funders don't believe there are buyers yet for mortgage-backed securities.The regulator has asked representatives of mortgage banks, including the Mortgage Bankers Association, to come up with a detailed plan for Fannie and Freddie to help mortgage banks get credit. John Courson, chief executive officer of the association, said in an interview that the plan should be ready to be presented to the regulator within about a week. One possibility is that Fannie and Freddie will guarantee debt issued by warehouse lenders, making it easier for them to provide financing to mortgage banks.
...Mortgage banks typically are small, family-owned companies. Unlike commercial banks or thrifts, they aren't licensed to take deposits and so don't have that source of money for their loans. Instead, they borrow money from warehouse lenders, which often are units of larger banking companies. The mortgage banks use the short-term credit to provide loans to their customers and then pay back the warehouse lenders after selling the loans to bigger banks or to investors such as Fannie or Freddie. (emphasis added -ed.)
So, rather than let that market re-develop on a sounder basis, the Obama Administration plans to lend the mortgage banks the money to originate the loans which it then plans to buy itself.
The Administration apparently has tired of even trying to conceal the financial shell games it's playing.
