January 31, 2017
Mortgage Bankers and GSE Reform
The Mortgage Bankers Association has released GSE Reform Principles and Guardrails. It opens,
This paper serves as an introduction to MBA’s recommended approach to GSE reform. Its purpose is to outline what MBA views as the key components of an end state, the principles that MBA believes should be incorporated in any future system, the “guardrails” we believe are necessary in our end state, as well as emphasize the need to ensure a smooth transition to the new secondary mortgage market. (1)
While there is very little that is new in this document, it is useful, nonetheless, as a statement of the industry’s position. The MBA has promulgated the following principles for housing finance reform:
- The 30-year, fixed-rate, pre-payable single-family mortgage and longterm financing for multifamily mortgages should be preserved.
- A deep, liquid TBA market for conventional single-family loans must be maintained. Eligible MBS backed by a well-defined pool of single-family mortgages or multifamily mortgages should receive an explicit government guarantee, funded by appropriately priced insurance premiums, to attract global capital and preserve liquidity during times of stress. The government guarantee should attach to the eligible MBS only, not to the guarantors or their debt.
- The availability of affordable housing, both owned and rented, is vitally important; these needs should be addressed along a continuum, incorporating both single- and multifamily approaches for homeowners and renters.
- The end-state system should facilitate equitable, transparent and direct access to secondary market programs for lenders of all sizes and business models.
- A robust, innovative and purely private market should be able to co-exist alongside the government-backed market.
- Existing multifamily financing executions should be preserved, and new options should be permitted.
- The end-state system should rely on strong, transparent regulation and private capital (including primary-market credit enhancement such as mortgage insurance [MI] and lender recourse, or other available forms of credit risk transfer) primarily assuming most of the risk.
- While the system will primarily rely on private capital, there should be a provision for a deeper level of government support in the event of a systemic crisis.
- There should be a “bright line” between the primary and secondary mortgage markets, applying to both allowable activities and scope of regulation.
- Transition risks to the new end-state model should be minimized, with special attention given to avoiding any operational disruptions. (3-4)
This set of principles reflect the bipartisan consensus that had been developing around the Johnson-Crapo and Corker-Warner housing reform bills. The ten trillion dollar question, of course, is whether the Trump Administration and Congressional leaders like Jeb Hensarling (R-TX), the Chair of the House Banking Committee, are going to go along with the mortgage finance industry on this or whether they will push for a system with far less government involvement than is contemplated by the MBA.
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