Today, MBA is releasing a plan detailing how a future secondary mortgage market can work – describing a post-conservator end state for Fannie Mae and Freddie Mac. Our proposal includes transition steps detailing how to get from here to there and is the only paper that comprehensively addresses how the reformed secondary market would serve all Americans along the broad continuum of affordable housing needs.
Some may question the timing or advocate for the status quo. After 8 years, it’s easy to believe nothing will get done. But this Administration and Congress have made it clear that dealing with GSE reform is a priority. This issue is critical to the housing finance system and deeply personal to MBA members – the thousands of lenders across the country who cannot adequately serve their communities without reliable and direct access to the secondary market. Therefore, we must be in the game and not on the sidelines.
MBA’s plan sets the housing finance system on a path toward lasting stability as a pillar of the American economy. We examined a variety of models in the search for a pragmatic, comprehensive solution that would adhere to a set of core principles that protect taxpayers and ensure the long-term health of the secondary mortgage market.
A crucial tenet of our plan is that it levels the playing field for all lenders. The mortgage market and consumers benefit from a large and diverse base of lenders. Smaller lenders, in particular, play a key role in strengthening the system for consumers by focusing on niche markets and leveraging unique knowledge of local consumer needs.
Our end state envisions multiple private guarantors, preferably more than two, operated as utilities and regulated by the Federal Housing Finance Agency or a successor agency. Congress would need to revise the existing GSE charters (Fannie Mae and Freddie Mac would likely be re-chartered as the first two guarantors) and empower the regulator to issue additional charters to new guarantors. Consumers and lenders would be best served by more competition in the secondary mortgage market which is why a multiple guarantor model is a vast improvement over the current duopoly.
Guarantors would securitize single-family and multifamily mortgages, with the securities (not the companies) backed by an explicit federal guarantee, in the form of a federal mortgage insurance fund. The federal guarantee would extend to the securities only, and would not be used to bail out the guarantors. The mortgage insurance fund would be built up over time through appropriately priced insurance premiums paid by the guarantors. The fund would cover catastrophic risk, kicking in only after all layers of private capital had been exhausted.
No one wants to relive the dark days of the financial crisis. And only Congress has the authority to truly reform the secondary mortgage market to reduce the chance of history repeating itself and move us to a stable, sustainable real estate finance system.