The Mortgage Bankers Association (MBA) has submitted a comprehensive response to a series of questions from the Obama Administration designed to elicit input on the future of the housing finance system, including Fannie Mae and Freddie Mac, and the overall role of the federal government in housing policy. The Administration released its questions for public input on April 14, 2010.
"It is our sincere hope that once Congress and the administration complete the financial regulatory modernization bill, their focus will shift to the future of the secondary mortgage market," said Michael D. Berman, CMB, MBA's chairman-elect. "We have spent the better part of the last year and a half looking at how to attract private capital and restore confidence in the secondary mortgage market. We want to work with the administration and Congress to find long-term solutions that will ensure sufficient mortgage liquidity in times of market stress."
MBA's comments builds on the work of its Council on Ensuring Mortgage Liquidity, a 23-member task force, chaired by Berman, representing MBA's diverse membership base. MBA established the Council in October of 2008 with a mission to look beyond the current crisis, to what a functioning secondary mortgage market should like for the long term.
In September of 2009, the Council released its Recommendations for the Future Government Role in the Secondary Mortgage Market, a groundbreaking proposal for a new line of mortgage-backed securities (MBS). Each security would have two components—a loan level guarantee provided by a privately-owned, government-chartered and regulated mortgage credit-guarantor entity (MCGE) and a security-level, federal government-guaranteed wrap.
MBA's letter incorporates the Council's recommendations into concrete answers to the specific questions posed by the Administration.
Among the highlighted points in the letter are:
► A fully private model would be unable to attract the depth and breadth of capital needed to fund the U.S. housing finance system through all market environments. (p. 16)
►Concerns about capacity, funding, responsiveness and political distraction make it clear that a fully-government-based system would not be optimal. (p. 17)
►The core mortgage finance market itself, and the role the government plays in it, should be neutral to and separate from other housing policy goals. (p. 3)
►Secondary mortgage market transactions should be funded with private capital, the government should provide an explicit credit guarantee and the taxpayers should be protected. (p. 4)
►The federally related securitization guarantee should support only "core" mortgage products with well-understood, well-documented risk characteristics. (p. 7)
►MBA's proposal is not intended to cover the entire market, leaving key roles for FHA, VA, RHS and Ginnie Mae, as well as a fully private market. (p. 7)
►Any restructuring proposal must include consideration of, and measures to facilitate, the transition from the current to the future state. (p.9)
►When looking at other countries, the U.S. is unique in terms of the importance of securitization (p. 14) and is unusual in its reliance on mortgage guarantees and government-backed mortgage institutions like the GSEs. (p.15)
►The 30-year fixed rate self-amortizing prepayable mortgage requires some level of government support for the secondary mortgage market (p. 16)
"MBA's groundbreaking work on this issue was done by a council of industry practitioners who understand the capital markets and have perspective on what will and what will not work," said Berman. "We have been studying these questions for the past year and a half, but most members have been working on them for entire lifetimes. At this juncture, we cannot afford to pursue unworkable plans that do not take into account market realities."
MBA's letter can be found by clicking here.
For more information, visit www.mortgagebankers.org.