The two letters–one sent separately and one sent as part of a coalition of industry trade groups–questioned the proposed “waterfall approach” to UMBS pooling practices, warning that the proposal could have a “negative effect” on market liquidity and result in less credit access and higher borrowing costs. The “waterfall approach” allocates loans to standardized multi-lender pools, specified pools, and special-purpose/single-lender pools. Under this set-up, an increase in the share of loan production is delivered into multi-lender pools either through incentives provided to originators or requirements levied on them.
“MBA believes the proposed changes are likely to have a negative effect on market liquidity and could thereby raise borrowing costs and reduce access to credit,” MBA Senior Vice President Residential Policy and Member Engagement Pete Mills wrote in his letter to Calabria. “Further, it is not clear that there are problems or inefficiencies in the current market that provide justification for the scale of the proposed changes. MBA therefore strongly urges FHFA not to implement the proposal as envisioned in the RFI.”
Mills added that the MBA believed the FHFA’s proposal “could weaken investor demand due to this restricted range of pool types. The significant diversity of investors in the conventional MBS market is the driver of the deep liquidity in this market. A diverse range of investors features a diverse range of preferences, and regulatory limits on pooling parameters could prevent the creation of pools that are demanded by certain investors.”