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The National Association of Home Builders released its blueprint for housing finance reform that it said will transition Fannie Mae and Freddie Mac into a new private-sector securitization system.
Keeping the presence of government explicit to coax investors back into the market, the plan would gradually phase out the government-sponsored enterprises in favor of private housing finance entities chartered to purchase and package loan securities, according to the NAHB.
The proposal falls in line with the Obama’s administration’s housing reform attempt to wind down the GSEs, and reintroduce private capital into the market.
The dozen Federal Home Loan Banks could potentially serve as the private housing finance entities, according to the proposal. This option would take advantage of the banks' existing network.
The new entities would be chartered to purchase single-family and multifamily mortgages from loan originators and package the loans into securities for sale to investors worldwide. The federal government would guarantee the securities, not the mortgages.
As an additional safeguard for mortgage-backed securities investors, the new firms would also have to pay premiums for an insurance fund backed by the government, similar to Ginnie Mae's current system.
The change would occur over time with Fannie and Freddie continuing to operate during the transition period.
“The intent is for the government to be in a secondary position and to be the insurer of last resort in order to reduce the risk to taxpayers,” said Barry Rutenberg, chairman of NAHB and a homebuilder from Gainesville, Fla.
Rutenberg said the system must include private, federal and state sources of housing capital; offer a reasonable menu of sound mortgage products governed by prudent underwriting standards and adequate regulation; and provide a federal backstop to ensure that 30-year, fixed-rate mortgages are available at reasonable interest rates and terms.
The NAHB also suggested the following:
Reform the system for rating mortgage-backed securities.
Continue the role of the federal government housing agencies such as the Department of Housing and Urban Development, Federal Housing Administration, Veterans Affairs and others.
Enhance the position of state and local housing finance agencies as a source of housing funds.
Repair flaws that produced the housing boom and bust, including closing the gaps in standards and oversight.
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