Mortgage Bankers Urge Congress to Replace Fannie, Freddie
The mortgage banking industry is calling for a regulatory overhaul of the secondary mortgage market and a new governmental role in the securitization of mortgage loans. The Mortgage Bankers Association on Wednesday urged the implementation of new mortgage-backed securities (MBS) and a new set of government-regulated mortgage investors and securitization entities. The MBA said government's role in the housing market should not be confined to providing capital in an attempt to absorb risk during times of extreme financial distress, but should be expanded to promote liquidity for investor purchases of MBS. “Rebuilding the secondary market is critical to restoring liquidity and confidence," said MBA vice chairman Michael Berman. "The government has an important, limited role to play to ensure a stable flow of funds for mortgages.” The MBA recommends a good bank/bank bank resolution of the current government-sponsored enterprises (GSEs), their assets and liabilities. Regulators could then split off Fannie Mae's (FNM) and Freddie Mac's (FRE) infrastructure -- including technology, staff, documents and origination and servicing relationships -- into the foundation of a few regulated mortgage entities. These mortgage credit-guarantor entities (MCGEs) would be involved in a new line of MBS with several key components distinguishing them from current MBS. The new structure would include a loan-level guarantee provided by the privately-owned, government-chartered and regulated MCGEs. The second component, a security-level, federal government-guaranteed "wrap," would act as an explicit government guarantee focused on the credit risk of these new MBS, similar to that on a Ginnie Mae security. The securitization guarantee would support only "core" mortgage products with transparent risk -- either conventional single-family products or multifamily products traditionally supported by the GSEs. The government guarantee federal insurance fund would be self-supporting and likely to result in surpluses in most cases except "most extreme circumstances," MBA says. It could also present a potential source of funds for future affordable housing expenditures considered by Congress. “While this is not the only viable framework, we believe the recommendations represent a workable approach, balancing the government’s ability to ensure liquidity, with the need to protect taxpayers from the credit and interest rate risk inherent in mortgage finance,” said MBA president and CEO John Courson. Write to Diana Golobay.