Jack Hopkins, president and chief executive officer of CorTrust Bank in Sioux Falls, S.D., has testified before Congress, on behalf of the Independent Community Bankers of America (ICBA), that the housing government-sponsored enterprises (GSEs) are critical to ensuring a strong secondary mortgage market and helping community banks continue to serve their customers. Hopkins, testifying before the House Financial Services Committee on the future of our nation’s housing finance system, went on to outline ICBA’s core principles for reform of the housing GSEs.
“Our nation’s nearly 8,000 community banks are common-sense lenders that are valuable players in the mortgage market. Were it not for the housing government-sponsored enterprises, our customers would be at the mercy of the big banks and brokers for mortgage services, and not experience the vast advantages of working with a community bank,” Hopkins said. “That’s why fixing the housing finance system, and getting it right, is so important to community banks.”
Hopkins also mentioned that either as part of housing finance reform or separately, the committee must correct the injustice suffered by more than 1,000 community banks when the value of their GSE preferred shares plummeted after Treasury took Fannie Mae and Freddie Mac into conservatorship. He said that restoring the nearly $20 billion in community bank capital value that vanished as a result of the Treasury's actions can foster up to $200 billion in new lending to help in the economic recovery.
Hopkins outlined a set of core principles developed by ICBA to help guide the reform debate, which included the following:
►The secondary mortgage market must be impartial and provide equitable access and pricing to all lenders, regardless of size or volume.
►The secondary market must have a limited mission focused on supporting residential and multi-family housing in all communities.
►The conflicting requirements of a public mission with private ownership must be eliminated.
►The accumulation of retained earnings must be an important component of the secondary market structure to help attract equity capital when needed.
►There should be more than one secondary market provider to foster competition and provide better access for community banks.
►The functions of Fannie Mae and Freddie Mac should not be incorporated into the Federal Home Loan Bank System, whose focus must remain that of providing liquidity to their members.
►Congress must ensure that the secondary market continues to have government ties. Whether the Fannie Mae and Freddie Mac charters are retained, or a new secondary market is created, it must have some government tie to ensure continued steady and favorable access to the capital markets.
Hopkins also addressed the importance of the Federal Home Loan Bank System to community banks, which throughout the financial crisis, continued to provide advances to its members without disruption, while other segments of the capital markets ceased to function. “Congress must ensure that this stable, reliable and resilient source of funding, liquidity and other products continues and is not diverted to other social goals,” Hopkins said.
Hopkins said REFCORP payments should not be diverted to other government programs when the obligation is paid off. Specifically, these earnings should be kept in the system to build retained earnings to protect the system’s financial condition and not be siphoned off to pay for other programs. “The Federal Home Loan Banks, their members and the consumers and businesses they serve should not be penalized because the Federal Home Loan Banks paid off their debts early,” Hopkins said.
“Without a strong, reliable secondary market for residential mortgage loans, many community banks would be unable to offer long-term residential mortgages to their customers,” Hopkins said. “We look forward to working with this committee to address the future of housing finance, which is critical to our nation’s community banks and the communities and customers we serve.”
For more information, visit www.icba.org.