David Stevens, president and CEO of the Mortgage Bankers Association (MBA), is scheduled to testify before the House Financial Services Committee this Thursday, July 18, at which time he is expected to express the MBA's support for a bill introduced last week by a group of House Republicans that would phase-out government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac over a five-year period, replacing them with a securitization platform, as well as limit government mortgage guarantees.
The Protecting American Taxpayers and Homeowners (PATH) Act, introduced by members of the House Financial Services Committee and spearheaded by Committee Chairman Jeb Hensarling, aims to create a sustainable housing finance system by ending the taxpayer-funded bailout of the GSEs, increasing competition in the housing finance market and providing consumers with more mortgage products to choose from.
‘The release of this bill represents an important step in defining the boundary of the debate over the government role in housing finance,’ Stevens wrote in a statement. ‘I compliment Chairman Hensarling for introducing his approach to begin this discussion.
‘Fannie Mae and Freddie Mac have been in conservatorship for almost five years now, and it is important that policymakers begin defining a long-term plan for the future role of the federal government in the mortgage market,’ Stevens added. ‘[The] MBA remains committed to its key principle that a successful secondary market should rely primarily on private capital, but will also require a limited, but explicit, government backstop to maintain stable liquidity through all market cycles.’
Although Stevens and the MBA are in support of the bill, the association is also pushing for reforms that can be put in place via administrative rulemaking, without the need for prolonged legislative wrangling. The MBA's ‘Road to GSE Reform‘ outlines five steps that the Obama administration can take today to reform the secondary market.
‘What we're proposing is a rational set of steps,’ Stevens said during a press conference held at the MBA's headquarters Monday. ‘These are core fundamentals regardless of what comes out legislatively. We started this in the spring and have been working on this for quite some time. These five steps don't require legislation – they're critical to any outcome on a going-forward basis, and we need to get started now. These solutions can work in any format.’
The idea is to get as many reforms into place now, ahead of legislative debate, to help speed the lawmaking process and smooth the transition. The five transitional steps, as per the MBA's website, are as follows:
- The Federal Housing Finance Agency (FHFA) should require Fannie Mae and Freddie Mac to make their individual mortgage-backed securities fungible, or create a common security, for delivery to the TBA market.
- The FHFA should require the GSEs to implement up-front risk-sharing programs that restore private capital to the market and deliver the benefits of competition to consumers.
- The FHFA should take steps to ensure Fannie Mae and Freddie Mac offer viable secondary market options that work for smaller lenders.
- The FHFA should develop a transparent outer credit boundary for the GSEs and a common framework for reps and warrants that give lenders the certainty and confidence to lend to the full extent of the allowable credit box.
- The FHFA should redirect its Common Securitization Platform (CSP) project to allow sufficient stakeholder input to ensure the CSP's maximum utility for the entire market.
The MBA acknowledges that reforming the secondary market is going to take considerable thought and debate. It also acknowledges that its proposed reforms are only ‘first steps’ toward the goal of bringing private capital back to the secondary market.
‘This is not an end state,’ Stevens said. ‘These are just pieces of a puzzle that are fundamental to the housing markets. These are five transitional steps that are fundamental to making the system work. Without it, consumers will pay the price if this isn't resolved for them. This has to be built, so let's build it now.’
At the same time, Stevens says the MBA is ‘eager to work with Chairman Hensarling and all other members of the House Financial Services Committee to improve the [PATH Act] in a way that creates a vibrant secondary market that works for lenders of all sizes and business models.’
‘We appreciate the chairman's efforts to tackle other key housing finance concerns in his bill, including the long-term financial viability of FHA's single-family programs,’ Stevens wrote. ‘It is critically important that the final bill strike the appropriate balance between strengthening the agency's fiscal solvency and maintaining its traditional role as a critical source of affordable credit for first-time buyers and working families.’
In particular, the MBA is in support of the Consumer Mortgage Choice Act, a proposal contained within the PATH Act that would strengthen the qualified mortgage (QM) definition to improve credit availability by ensuring that more borrowers can qualify for QM loans.
‘We also support the bill's elimination of the Premium Capture Cash Reserve Account proposal, which would severely harm the mortgage markets,’ Stevens wrote, adding that the MBA also supports a section of the PATH Act that ‘addresses the growing threat of localities using the power of eminent domain to break mortgage contracts.’
‘By preventing Fannie Mae, Freddie Mac and FHA from doing business in communities that use eminent domain to seize mortgages, the bill protects taxpayers from having to foot the bill for these unconstitutional schemes that threaten to destabilize local housing markets,’ he remarked.
Additionally, Stevens said the MBA supports further review of the final Basel 3 rules – in particular more detailed analysis as to whether they might result in tighter credit in the single-family mortgage market.
The PATH Act will more than likely need to be reconciled with other legislation. In June, a bipartisan group of senators, including Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., both members of the Senate Banking Committee, introduced the Housing Reform and Taxpayer Protection Act of 2013, which would also phase out Fannie Mae and Freddie Mac over a five-year period.
This bill would require holders of mortgage-backed securities to keep a 10% ‘skin in the game’ for first losses. In addition it would split credit investors from rate investors; replace the government-sponsored enterprises' affordable housing goals with a new program; and create a corporation to ensure that smaller banks have the ability to participate in the secondary market.
Stevens says he expects additional housing finance reform bills to be introduced in the months to come.
Thursday's hearing, entitled ‘A Legislative Proposal to Protect American Taxpayers and Homeowners by Creating a Sustainable Housing Finance System,’ will be held in 2128 Rayburn House Office Building, Washington, D.C.
A Webcast of the hearing can be accessed at: http://financialservices.house.gov/.