Mortgage Bankers Association (MBA) CEO David H. Stevens addressed his colleagues this week during the MBA's National Secondary Market Conference & Expo, calling on lawmakers and regulators to heed some feedback from the mortgage industry related to what kinds of reforms are necessary to boost the secondary market.
Stevens noted that, overall, the industry is making progress in terms of being heard in Congress and the White House. However, he was sharply critical of policy makers' approach to g-fees, as well as their lack of action in areas such as the role of government-sponsored enterprises (GSEs) Freddie Mac and Fannie Mae.
‘The collective players in Washington have created an atmosphere where guarantee fees have been arbitrarily raised and, likewise, used as an offset to pay for other budget items…an atmosphere where government is backing the bulk of the mortgage market and directly impeding any opportunity for a return of private capital,’ Stevens said.
He highlighted his own group's efforts toward bringing together stakeholders from various public and private interests to devise responses to the nation's real estate finance ills. The federal government, however, has hindered rather than helped these efforts.
‘In this atmosphere, it's been okay to change housing policy and regulations without transparency, coordination or consideration for the downstream effects – or to simply ask the industry how this will all impact the average consumer or the economic recovery,’ he remarked. ‘The lack of any leadership in a future model for housing finance and lack of coordination are our greatest challenges today.’
Stevens laid out a few measures that he believes will help break the logjam.
‘We need these three things from Washington, and we need them now,’ he said.
1. A leader. President Obama needs to appoint a national housing policy coordinator that will centralize the overlapping and often disjointed rules governing mortgage banking and real estate finance.
2. Transparency! The GSEs and the Federal Housing Finance Agency (FHFA) can no longer make ‘market-shifting decisions without the input of consumers or the industry,’ Stevens said.
3. A path out of Fannie/Freddie federal conservatorship. This idea is not new. The GSEs' conservatorship was intended to be temporary – but that was almost five years ago.
Regarding the latter, a new risk-sharing paradigm was proposed whereby the GSEs would offer different credit-enhancement structures, and private investors would step into the first-loss position.
‘Allowing deeper levels of credit enhancement would encourage private investors to invest more in this space, reduce the government's exposure to mortgage credit risk and lower guarantee fees to lenders,’ he explained.
But perhaps more compelling was Stevens' call for the creation of a single mortgage security instrument that would bring the Freddie Mac pass-through security in line with the Fannie Mae mortgage-backed security. Although taking this approach is also not a new concept, the MBA deems it imperative in order to push real market reform.
‘Any future state requires a common currency,’ he said. ‘This is fundamental to virtually every GSE proposal – greater standardization in the security is necessary in order to maintain liquidity.’
Standardizing the security instruments is a somewhat contentious issue within the industry, due largely to the price differential between Fannie and Freddie securities and the associated swap costs. There are also concerns about how much standardization will cost and how those costs will be covered.
In Stevens' estimation, however, meeting the costs will be worthwhile.
‘The ongoing taxpayer subsidy, the timing based on the current liquidity environment, and the GSEs' record earnings all support the imperative to resolve this issue now,’ he said.
The MBA chief said he would ‘personally deliver’ the group's plan to Acting FHFA Director Edward J. DeMarco. What happens at that point is anyone's guess.