WASHINGTON — Equal access to the secondary mortgage market is necessary to curb further bank concentration of the industry, Senate lawmakers from both parties said on Tuesday.
Sen. Richard Shelby, the Alabama Republican who is the ranking member on the Senate Banking Committee, raised concerns at a hearing on access to the secondary market for small financial institutions that “mortgage lending is concentrated in just a few banks.”
Last year, three banks originated 56 percent of all mortgages, while eight institutions serviced 63 percent of all outstanding mortgages, according to Shelby.
Sen. Jon Tester, a Montana Democrat, said he welcomes more private investment in the housing market. “The consolidation in the banking industry we’ve seen over the last 25 years or so is not healthy to the industry as a whole, and it’s certainly not healthy for the consumers,” he said.
Christopher Dunn, executive vice president of the community-based South Shore Saving Bank in Massachusetts, suggested that government’s role in housing finance should be dramatically reduced.
“One of the reasons that we lost a lot of our market share over the course of last several years is the playing field is not level, and a lot of that has to do with the back-and-forth of regulations that are already in place,” Dunn said.
The committee’s Democatic Chairman, Tim Johnson of South Dakota, called the current mortgage system “unsustainable.”
About nine in 10 U.S. mortgages are guaranteed by either federal agencies or Fannie Mae and Freddie Mac.
Since the Obama administration called for the elimination of Fannie and Freddie and offered three options for their replacement in February, several bills aimed at scaling back the government’s role and getting the private sector more involved in the secondary mortgage market have been introduced in the House. No legislation has yet been introduced in the Senate.
Peter Skillern, executive director of Community Reinvestment Association of North Carolina, warned that reform proposals that eliminate the government-sponsored enterprises and convert to a solely private capital market will “be harmful for communities and housing market as a whole.”
Fannie Mae and Freddie Mac, also called government-sponsored enterprises, provide liquidity to the secondary mortgage market by buying mortgages from lenders and repackaging them as securities for investors.
The government seized control of the nation’s two mortgage giants during the financial crisis as losses on mortgages they held mounted. The government has, so far, contributed more than $138 billion in aid to the troubled Fannie and Freddie.
“GSEs are needed as public purpose agencies for the stability of our nation’s housing and finance markets,” Skillern argued.
Rod Staatz, president and CEO of SECU Credit Union in Maryland, who calls for stronger supervision of the government-sponsored enterprises, wasn’t as sure.
“We need an independent third party,” Staatz said.