WASHINGTON – Housing finance reform plans aimed at ending the government conservatorship of Fannie Mae and Freddie Mac must take into account the needs of small lenders and increase the competence of the secondary mortgage market, several senators and banking experts said Thursday.
Nearly nine years after Fannie Mae and Freddie Mac got into financial trouble as part of the subprime loan debacle and were placed in conservatorship, several House and Senate committees are working to get them out of government control.
David Stevens, president and CEO of Mortgage Bankers Association, said the core principle of any new plan should be to support a competitive market for lenders of all sizes and business models.
“Making a cash window that’s at the same price with the same credit terms in the new guarantor model gives an outlet for all small lenders, regardless of size, regardless of business model, and it doesn’t force them into some other system that, because of liquidity and size, may not get them the same pricing ultimately,” Stevens said.
The Mortgage Bankers Association’s approximately 2,300 members include 650 small, community-based mortgage lenders.
Government-sponsored entities like Fannie Mae and Freddie Mac have in the past left small lenders in a less competitive position by giving large-volume lenders lower guarantee fees and underwriting exceptions. The market share of the 10 largest single-family mortgage originators increased from less than 40 percent to almost 80 percent from 1998 to 2010, according to Stevens’ written testimony.
“It’s one of the things we want to make sure never happens again,” Stevens said.
One solution discussed in the hearing is the Ginnie Mae model, in which a single platform is used to issue mortgage-backed securities and a federal guarantee. It allows small lenders to get the same price as big lenders get because they are all going to a common security that has a great deal of liquidity, said Edward DeMarco, president of Housing Policy Council of the Financial Services Roundtable.
A group of small and mid-sized lenders and affordable housing advocates provided an alternative approach to housing finance reform on Wednesday, focusing on principles to prevent market concentration and artificial barriers to entry in the GSE loan origination market.
“The primary objective of any GSE reform legislation should be to promote broad access to affordable, sustainable mortgage credit in all communities while minimizing risk to taxpayers,” said the Main Street GSE Reform Coalition in a press release.