The ongoing debate on how to improve the housing finance system continued this week at a hearing by the House Housing and Insurance Subcommittee.
Commentary focused on the need for reforms that are sustainable over time, do not result in boom-bust cycles, and ensure equal market access for lenders of types of lenders, which will create more competitive pricing.
“Today was an important step towards reforming our housing finance system, credit enhancement, and credit risk transfers,” Subcommittee Chairman Sean Duffy (R-WI) said. “Expansion of private sector capital into the housing finance system should be a key goal in any restructuring of the system. We’ve seen how successful these products have been in offloading risk in recent years and the federal government has engaged in these products and programs to some extent.”
Duffy said lawmakers must investigate further how reinsurance can play an increased role in offloading risk in the housing market.
“As with any private sector capital product, we must look at the availability of coverage, or capacity, and the impact of cyclicality on these products,” Duffy added. “While I believe these products will ultimately help bring in capital to the housing finance system, we must make sure taxpayers are protected and not left holding the bag in economic down cycles.”
Michael Canter, director, US Multi-Sector and Securitized Assets at Alliance Bernstein, said the government-sponsored entities (GSEs) have reduced their credit exposure further through various structures including the Credit Risk Transfer securities. The creation of the CRT market brings a level of private capital that didn’t exist before, he added.
“In the last five years, the GSEs have undergone major reform. … These reforms, together with increased transparency, have been vital to improving the loan manufacturing process and making credit risk transfer possible,” Jeffrey Krohn, managing director, Guy Carpenter and Company, stated at the hearing.
Andrew Rippert, CEO of Global Mortgage Group at Arch Capital Group, added that the US housing finance market needs an increased amount of private capital and diverse sources of capital to provide first loss coverage on mortgage credit risk. The solution should also reduce taxpayer risk, lower the cost to borrowers, and reduce operational costs for lenders.
Patrick Sinks, CEO, Mortgage Guaranty Insurance Corp., concluded that gains that have been made in protecting consumers and the markets should not be lost.