MBA white paper proposes fixes to secondary mortgage market

The Mortgage Bankers Association (MBA) released a white paper that lays out a plan to reform government sponsored entities (GSEs) and the secondary mortgage market.

The paper, entitled “GSE Reform: Creating a Sustainable, More Vibrant, Secondary Mortgage Market,” also attempts to shed light on two critical areas that have tested past reform efforts – the appropriate transition to the reformed system and the role of the secondary market in advancing an affordable housing strategy.

“This paper not only lays out a detailed end state solution that will work for the residential and multifamily markets, but also the transition steps to accomplish this goal,” Rodrigo Lopez, executive chairman of NorthMarq Capital and chairman of MBA, said. “We look forward to working with Congress and the Administration to find a permanent, sustainable solution to the government’s role in housing finance that doesn’t repeat the mistakes that led to the crisis.”

MBA’s plan would inject much higher levels of risk-bearing private capital into the mortgage system, while reducing the system’s reliance on government support. It also seeks to enhance the stability of the mortgage system with multiple guarantors that will operate as privately-owned utilities.

It would also seek to protect taxpayers and consumers with a clear set of market conduct rules, prudential requirements, and a new federally-backed Mortgage Insurance Fund (standing behind the mortgage backed securities, not the guarantors themselves) financed with insurance premiums.

It would additionally minimize disruption during the transition to the new system by preserving what works in the current system and utilizing the existing regulatory framework where appropriate.

“Key leaders on Capitol Hill and in the new administration have made it clear that GSE reform should be accomplished through bipartisan legislation,” David Stevens, MBA’s president and CEO, said. “While progress has been made during conservatorship, only Congress has the power to ensure lasting reform.”

The paper was developed by MBA’s Task Force for a Future Secondary Mortgage Market, made up of individuals from MBA member companies.

“The secondary mortgage market plays a vital role in promoting access to credit for prospective homeowners, the development and preservation of affordable rental housing, and support for underserved market segments. MBA’s proposal will help ensure lower housing costs and affordability for all Americans,” Debra Still, president and CEO of Pulte Mortgage, and a Task Force member, said. “The secondary mortgage market is strongest when it is well-positioned to serve the most diverse group of lenders possible, thus promoting broad competition which is ultimately beneficial for consumers. MBA’s proposal meets these complementary goals.”