A Senate GSE reform bill contains a number of provisions that will reduce the cost of issuing private-label MBS, according to Sen. Bob Corker, R-Tenn., who wants to impose a substantial capital requirement on credit enhancers.
The reform bill authored by Sens. Corker and Mark Warner, D-Va., requires credit enhancers to put 10% capital behind every newly issued MBS. Many consider the 10% levy too high and unnecessary.
But Corker defended the 10% requirement at a Senate Banking Committee hearing Thursday.
The Tennessee senator stressed that the GSE reform bill will lower the cost of securitization via more competition and the use of a single securities platform.
Issuers will have full faith and credit of the U.S. behind the government guarantee, uniform servicing and pooling agreements, and a clear definition of representations and warranties. It clears up a lot of the “legal limbo that we’re in,” the senator said.
Corker asked Mark Zandi, the chief economist at Moody’s Analytics, for his opinion.
“You are absolutely right, there are things in the legislation that will lower costs relative to where we are today,” Zandi testified.
“In my view, 5% is appropriate,” the chief economist said. However, Zandi noted that the 10% requirement could be structured in a “way that isn’t too costly.”