The House Financial Services Committee is preparing for a day of expert testimony on the Future of Housing Finance, beginning now. Today’s meeting is being billed as “a Review of Proposals to Address Market Structure and Transition,” which the industry is translating as “finally getting around to address the GSEs.” The committee will not meet again until November. Dodd-Frank is comprehensive regulatory reform, touching almost every aspect of housing finance – except for the government sponsored-entities of Fannie Mae and Freddie Mac. Written testimony started to be released yesterday evening, with Michael Heid, Co-President of Wells Fargo Home Mortgage and Michael Farrell, CEO of Annaly Capital Management providing previews of their written testimony. Both will argue for a highly diminished role of the GSEs in the secondary markets. Tom Deutsch, the executive director of the American Securitization Forum will largely come out in support of this, but will say that caution must be taken in the new environment of heightened and multitudinous regulations. Over the last year and a half, the securitization market has been confronted with a wave of legislative and regulatory action, for example, including the securitization-related provisions of the Dodd-Frank Act, the FDIC’s final rule relating to its securitization legal isolation safe harbor, new SEC disclosure rules under Regulation AB, further changes in regulatory capital requirements, changes in generally accepted accounting principles – and not to mention international initiatives such as “Basel III.” “The regulatory challenges are further exacerbated when you consider that the market will in many cases not be able to tap the unregistered private placement market in situations where new regulations or disclosure requirements will be difficult or impossible to meet,” Deutsch will say. Ken Bentsen, VP for public policy and advocacy at the Securities Industry and Financial Markets Association, the other trade group testifying today, will argue for a simpler starting point. “The first policy question that members of Congress and the Administration face: should the government provide material support to mortgage lending? Only Congress can define what the goals of national housing finance policy should be,” his written testimony states. Bentsen, however, is somewhat critical of Heid’s suggestion that the creation of private bond insurers, what he calls the Mortgage Securities Insurance Companies, will provide an adequate backstop in the absence of an implied US government guarantee on MBS. “Many insurers have ceased underwriting new business, have entered a wind-down mode, and/or have ceased paying claims on their insurance policies,” Bentsen will testify. “Clearly private sector solutions were not, and likely will not be, resilient in times of stress.” Write to Jacob Gaffney.
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