As the Obama administration edges into its final year, there is a debate heating up about the future of government sponsored enterprises, Freddie Mac and Fannie Mae. This debate has led to serious divisions in the banking lobby meaning that the interest of small and mid-sized lenders are pitted directly against the big banks. Small and mid-sized lenders are becoming bigger and bigger players in the mortgage landscape today, especially as many nontraditional lenders have stepped in to provide opportunities for those who would not otherwise qualify for a mortgage.

The executive director of the community, Mortgage Lenders of America, Glen Corso, said that the Federal Housing Finance Agency should be focused on recapitalizing and releasing GSEs from conservatorship. According to him, reforms are needed in order to ensure that the GSEs survive and promote what’s seen as a level playing field for small lenders.

Ultimately, the goal of this would be to keep mortgages under control as it relates to costs. One of the reasons that mid-sized and small lenders are mostly focused on this issue is that there has been a big change in market position of small lenders before 2008 and today.

As of today, small lenders make up over 40% of all originated mortgages. This amount was much lower in the timeframe before 2008. a primary reason for this is that prior to 2008, these GSEs practiced discriminatory pricing and gave worse pricing to those smaller lenders and better access to cheaper pricing to big lenders.

Although that discriminatory pricing has been virtually eliminated, it has allowed small lenders to compete on a more level playing field. If a new administration came in however, and GSEs recorded a loss, that situation could change significantly.

A new political administration could see that as the excuse to reduce GSE activity and this would mean a move back to a mortgage market dominated by the big banks where small lenders as well as their customers are at a significant disadvantage.