Reforms to government-sponsored enterprises Fannie Mae and Freddie Mac should promote beneficial competition and avoid dangerous concentration in the mortgage lending industry, Sam Vallandingham, president and CEO of The First State Bank in Barboursville, West Virginia, told the House Financial Services Committee’s Subcommittee on Housing and Insurance.
“The stakes involved in getting housing-finance market policies right have never been higher,” Vallandingham added, speaking on behalf of ICBA. “ICBA’s approach to GSE reform is simple: use what’s in place today and is working and focus reform on aspects of the current system that are not working or that put taxpayers at risk.”
In his testimony, Vallandingham laid out ICBA’s principles for GSE reform. They include allowing the government-sponsored enterprises to rebuild their capital buffers; providing competitive, equal and direct access to the market on a single-loan basis; reducing the risks posed to the GSEs by credit-risk transfers; and ensuring an explicit, paid-for government guarantee of GSE mortgage-backed securities and strong oversight from a single regulator.
Vallandingham also outlined needed legislative reforms. He urged the Federal Housing Finance Agency to end the GSEs’ net-worth sweep, establish capital-restoration plans, and delay the launch of its Uniform Mortgage Backed Security until the GSEs are recapitalized and released from conservatorship. He also asked Congress to create a catastrophic mortgage insurance fund for GSE securities and change the GSEs to regulated and shareholder-owned financial utilities.