It's time for the U.S. housing market to focus on rebuilding the secondary mortgage market, and the first step is to revamp Fannie Mae and Freddie Mac's proprietary infrastructures to ensure they are updated and maintained, said Ed DeMarco, acting director of the Federal Housing Finance Agency.
DeMarco made that statement while speaking before SIFMA in New York City.
The FHFA leader said the maintenance of the GSEs' securitization structure and the formation of a model that can carry the market into the future is something that "we should invest taxpayers dollars to this end once, not twice."
DeMarco said any platform constructed should be designed in a manner where it can be used by any issuer, servicer, agent or other party that eventually participates.
"One way to think about this effort is that the new securitization platform could become a form of a market utility," he said. "For example, if policymakers decide that there should be some type of federal guarantor of mortgage-backed securities, such guarantors will need these functions performed. In addition, even without such a guarantor structure, I would think that the private-label mortgage-backed securities market could benefit from such a utility. Providing standardization across key mortgage market functions should add depth and liquidity to the market."
Still, DeMarco said the future securitization platform will need to be heavily reliant on data quality, a solid joint-servicer compensation initiative, more disclosures for investors and reforms of the representation and warranties that govern mortgage securitization contracts.
Despite DeMarco seeing the enterprises as a type of initial platform for the new securitization model, he noted any transition is part of "steps that FHFA is taking to contract the enterprises operations – whether it is increasing guarantee fees or pursuing risk sharing alternatives."