The Mortgage Bankers Association was one of the first groups to publish their thoughts for the government on how to best tackle reforming Fannie Mae and Freddie Mac.
But now as the list of people commenting on how to execute reform continues to grow, David Stevens, Mortgage Bankers Association president and CEO, decided to go back and highlight one of the MBA’s main points and defend the need for multiple guarantors in the new system.
Under the MBA’s plan, the system would be a multiple guarantor model, with at least two entities and preferably more.
The first two guarantors would likely be rechartered successors to Fannie Mae and Freddie Mac.
The regulator would be permitted to charter additional guarantors, encouraging competition (or at least the threat of it). New firms would be able to apply for a guarantor charter that authorizes them to serve either the single-family or multi-family market or both markets.
Given the deep history of Fannie Mae and Freddie Mac, and their involvement in the housing industry, Stevens explained in a blog post, “there are some who question the benefits of a multiple guarantor model, and suggest we preserve the current duopoly. So, allow me to explain our thinking.”
Here’s a spotlight of two of the points Stevens makes.
First, markets and consumers are always best served by competitive forces. Multiple guarantors would give all lenders – but especially smaller lenders – more options. No lender would be required to work with a specific guarantor or to work with all guarantors. Instead, lenders would able to work with the guarantor or guarantors of their choice.
Additionally, the prospect of new guarantors would ensure that the existing ones have an incentive to compete against each other in areas such as: offering technology solutions and systems for interfacing with seller/servicers; structuring and executing risk-sharing transactions; product innovation; pricing and execution; and customer service.
And for those who argue that adding new guarantors would increase risk by creating more “too big to fail” entities, Stevens said this is far from the truth.
“In fact, one of primary benefits of a multiple guarantor model for the secondary mortgage market would be reducing the taxpayer’s exposure by diversifying risk across multiples entities,” he said.
U.S. Department of the Treasury Secretary Steven Mnuchin reaffirmed that housing finance remains a priority under the Trump administration as recent as this past July during his hearing before the House Financial Services Committee.
And due to the administration’s continuous promise for reform, there are plenty of groups looking to weigh in on the discussion. Here are links to a handful:
- It starts with rental housing: 3 key considerations for housing finance reform
- Fed Governor Powell: Here are 5 principles for housing finance reform
- Small lenders and affordable housing groups issue joint GSE reform proposal
- BPC: Here's a bipartisan path forward to accomplish GSE reform
- Community bankers: GSE reform should keep what works and just fix the problems