|The Mortgage Bankers Association (MBA) last week released a white paper detailing its recommended approach to reforming the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac and the housing finance system. The paper was developed by MBA’s Taskforce for a Future Secondary Market.
The MBA plan would replace the current housing finance system, in which the GSEs provide implicit federal guarantees on individual loans and mortgage-backed securities (MBS), with a system in which multiple private guarantors aggregate loans and sell MBSs to investors. The guarantors would be regulated as privately-held utilities and would be prohibited from engaging in any other lines of business.
MBA envisions that re-chartered versions of Fannie Mae and Freddie Mac would become the first two guarantors. The plan would authorize a federal regulator (either the Federal Housing Finance Agency or a successor agency) to charter additional guarantors. The regulator would also be tasked with establishing capital and other financial standards for guarantors and ensure equal access to the secondary market for all lenders.
MBS issued by the guarantors would be guaranteed by a federal mortgage insurance fund (MIF), which would be financed through premium payments paid by the guarantors. Both investors and the guarantors would take a first-loss position on the MBS, with the MIF covering only catastrophic losses.
MBA also calls for the new housing finance system to support financing for affordable housing. Specifically, the plan would direct the regulator to ensure that the secondary market meets three affordable housing objectives: providing access to credit for home buyers, financing the development and preservation of affordable rental homes, and improving liquidity for segments of the market that are currently underserved.
To this end, the regulator would establish both quantitative and qualitative affordable housing goals that guarantors would have to meet in order to purchase insurance from the MIF. The goals would be measurable and enforceable. Guarantors could even be fined if they fall far short of their goals.
In addition, the plan would direct the regulator to set and charge guarantors an affordable housing fee on all new business to generate funds to help finance additional affordable housing activities. MBA envisions the fee would support activities that are currently undertaken by the Housing Trust Fund and the Capital Magnet Fund, as well as a Market Access Fund that would support the research and development of products and initiatives that would expand affordable housing opportunities.
In its plan, MBA calls on Congress and the Administration to move quickly to consider and advance housing finance reform. MBA notes that both GSEs are currently required to completely eliminate their capital holdings by 2018. If policymakers don’t act quickly, MBA argues, it becomes highly likely that one or both of the GSEs will need to receive additional federal assistance.