Community banks say the Treasury's proposed housing market reforms will privatize the secondary mortgage market to the detriment of community banks that use GSE loan products to fund loans to consumers in small towns and rural areas. "A reliable secondary market is essential so that the nation's Main Street community banks can continue to offer residential mortgages to their customers," said Jim MacPhee, ICBA chairman and CEO of Kalamazoo County State Bank in Schoolcraft, Mich. "While reform should focus on preventing future crises in the housing market and embracing the common-sense underwriting standards long practiced by community banks, it should not eliminate all government involvement in the secondary market while turning it over to Wall Street." MacPhee said the Treasury's plan as it stands would simply transfer power to large banks insured by the Federal Deposit Insurance Corp., while removing some of the government mortgage products that community banks and their customers rely upon. "Its future structure should not foster further consolidation in the mortgage market, which would only result in higher mortgage costs and fewer consumer options," MacPhee added. The Community Mortgage Banking Project -- a coalition of lenders that advocates for mortgage market reform -- believes the plan will create a group of mega-lenders that will fail to offer diverse products. "The proposed wind down of Fannie and Freddie does little to restore healthy competition in the mortgage market and will simply permit the three mega?lenders that currently have a combined 55% market share to use their too?big?to?fail status and FDIC?insured deposits to drive mid?sized and smaller lenders out of business and further increase their market dominance," said CMBP Managing Director Glen Corso. "The end result will be to simply replace the two GSEs with a handful of too?big?to?fail government?backed banks. We do not believe that any proposal that reduces competition and diversity of funding sources for American home buyers is a good public policy outcome.” Write to Kerri Panchuk.