E.J. Burke, chairman-elect of the Mortgage Bankers Association (MBA), testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs at a hearing titled “Housing Finance Reform: Essential Elements of the Multifamily Housing Finance System.” Below is a copy of Burke’s oral testimony, as prepared for delivery.
"Chairman Johnson, Ranking Member Crapo, and members of the Committee, thank you for the opportunity to testify today. My name is E.J. Burke, and I am the 2014 Chairman of the Mortgage Bankers Association, as well as Executive Vice President and Group Head of KeyBank Real Estate Capital. I have over 34 years of experience in banking and commercial real estate finance. At KeyBank I oversee multiple commercial real estate lending platforms in our commercial and multifamily real estate finance business. KeyBank provides community banking services in 14 states and is a national commercial real estate lender and servicer.
"The multifamily rental housing market is a critical component of our housing system — in size, reach and the households that it serves. More than one in three American households rent their home, and more than 16 million of those households live in multifamily rental housing.
"Renters include workers who want to live near their jobs, retirees on a fixed income, families with children, students, and households who value the convenience and mobility that renting offers.
"A large and diverse group of capital sources currently provide liquidity for multifamily housing, and that diversification continues to increase. Private capital also bears significant risk in existing GSE multifamily finance platforms. The government-backed sources have experienced, even through the recent financial crisis, very strong credit performance. Importantly, as the recent economic downturn demonstrated, the countercyclical role is one that only the government can fulfill.
"With Fannie Mae and Freddie Mac’s conservatorship going on more than five years, policymakers must develop a long-term plan for the future role of the federal government in the mortgage market. This plan must address the GSEs’ unique role in multifamily rental housing. It is clear that the current state of the GSEs should not last indefinitely. However, policy makers should ensure the ongoing stewardship of valuable resources that support the multifamily market and utilize them to transition to a stronger housing finance system.
"As the Committee considers the structure of the multifamily housing finance system, we believe that policy makers should focus on ensuring the availability of capital in all market cycles. MBA believes that public policy should strike a balance that continues to attract and deploy private capital in the multifamily market, while establishing a focused government guarantee that enables liquidity and stability in all markets and all economic cycles.
"Bearing this in mind, MBA believes that a new system should incorporate several structural recommendations, which I describe in more detail in my written testimony:
"First, a wholly-owned government corporation should function as a catastrophic guarantor, administrator of a risk insurance fund, and regulator of secondary market entities. This guarantor would be funded by guarantee fees paid by issuers.
"The new system should also allow multiple, privately-capitalized issuers of government-guaranteed securities in the secondary multifamily mortgage market.
"Next, the GSEs’ existing multifamily assets and infrastructure should be preserved and carried over to a new system. Not only are these businesses valuable to U.S. taxpayers, transferring them to new entities would minimize market disruption and allow them to continue to serve the multifamily housing finance market.
"Finally, we firmly believe that proposed approaches should also be reasonable, flexible, and balanced with regard to the need to attract private capital. For example, policy proposals contemplating affordability requirements should take into account that 93 percent of multifamily units have rents affordable to households earning area median incomes or less.
"We are encouraged by recent legislative activity that has revived the policy debate on the future of Fannie Mae and Freddie Mac, and commend the efforts of the Chairman and Ranking Member, and those on this committee who have introduced thoughtful proposals that would create a comprehensive framework for the future of housing finance.
"Thank you for the opportunity to testify before you today. MBA remains committed to its key principle that a successful multifamily secondary market should rely primarily on private capital, while ensuring stable and continued liquidity in all economic cycles through a government role. We believe that this can be achieved in a manner that protects taxpayers, encourages competition, and builds upon the successes and strong foundation that exists today. We stand ready to work with the Committee as it continues to engage in this critically important effort. I look forward to your questions."