Any reform to the secondary market should provide smaller lenders with equal access to that segment of the market, while also containing an explicit federal guarantee for certain mortgage-backed securities, the Mortgage Bankers Association (MBA) said Monday.
Efforts to address Fannie Mae and Freddie Mac reform all share a common theme of restoring greater private capital to the mortgage finance market. An important corollary is that any reforms — whether transition steps or full-blown reforms — should ensure the government-supported secondary mortgage market provides equal opportunity for community-based lenders, the MBA said.
This is a vital step for a future competitive mortgage market that works in favor of borrowers, investors and taxpayers, the MBA emphasized in its latest white paper.
"It is critical that as policymakers transition away from Freddie Mac and Fannie Mae, a competitive environment is created so that smaller lenders are able to be effective in the secondary market," said Debra Still, chairman of the MBA.
She added, "Community lenders are a crucial part of a diverse, efficient marketplace that provides Americans across the country with safe, sustainable and affordable mortgage credit."
The MBA firmly believes, small lenders need a secondary market system that provides price certainty, execution for both servicing-retained and servicing-released loans as well as a means to conduct single loan executions with a low minimum pool size.
Currently, the government-sponsored enterprises cash windows provide some of these tools.
For instance, "while Ginnie Mae provides a means of securitizing single loans, the complexity of the process has kept many smaller originators from becoming direct issuers."
One major ongoing concern has been the pricing advantages and other preferences received by some lenders.
These programs have contributed to the consolidation of the lender market over the past decade.
According to the MBA, although the GSEs have said such disparities have minimized, there is little transparency on pricing and underwriting concessions offered to certain lenders.
"MBA believes that Federal Housing Finance Agency should expedite efforts to eliminate these opaque pricing and underwriting concessions," the MBA explained.
They added, "In addition, any successor to the GSEs that operates with a federal guarantee should charge the same price for all sellers/issuers, recognizing that private capital providing credit risk protection might price differently across originators."
As policymakers on Capitol Hill begin moving the market toward the desired state of GSE reform, there are two items that need particular attention.
The cash window needs to remain in place until an operable single-loan execution process is up and running and the FHFA platform initiative needs to include plans for the acceptance of small lot deliveries into multi-lender pools, the MBA noted.
"Making the secondary market work for smaller lenders is critical for providing a competitive market, which ultimately benefits homebuyers. Policymakers should take the steps they can today to make sure that secondary market reform provides smaller lenders with opportunities for direct access," the MBA concluded.