The chief executive of Annaly Capital Management (NLY) expects the secondary market will adapt to any changes that come to the structure of the housing-finance market by repricing it. Michael Farrell, who will appear tomorrow before the House Committee on Financial Services, said the majority of the capital in the $11 trillion mortgage market comes from the secondary market. "If the new system has significantly different risk, uncertainty and friction than the housing-finance system we have now, the consequences may be that our housing-finance system is smaller with lower housing values and less flexibility and reduced mobility for borrowers," Farrell plans to tell members of the committee at a hearing on the future of housing finance. Farrell will also say that he wants to see the portfolio activities of Fannie Mae and Freddie Mac eliminated. "The private market would expand its investment activity to fill this role," according to Farrell. "But it is important for the committee to understand that the majority of agency MBS investors finance their positions, using financing that is available and priced where it is because of the government guarantee on the assets." Farrell believes the current system, at least, "the one that prevailed until underwriting standards started to slip around 2004, is the most efficient credit delivery system the world has ever seen." But there isn’t enough capital for credit-sensitive, private-label MBS investors to supplant the installed base of rates buyers at the current price, according to Farrell. He also wants the guarantee on agency mortgage-backed securities and the 'to-be-announced' market of the current system to remain in place. Annaly, combined with its subsidiaries and affiliates, owns or manages more than $90 billion of primarily agency and private-label MBS, according to Farrell. The New York-based firm also provides securitization, structuring, financing, pricing and advisory services. Write to Jason Philyaw.