The Independent Community Bankers of America is pledging its support for a more-balanced, less-concentrated housing finance system that enables community banks to continue to access the secondary mortgage market.

Community banks represent approximately 20% of the mortgage market, according to ICBA.

Nearly 30% of community banks that responded to a recent ICBA survey said they sell half or more of the mortgages they originate into the secondary market, ICBA’s chair Bill Loving noted, indicating that any future secondary market structure “must preserve the relatively simple process” community banks and other small lenders can use to continue to access the market.

It is essential, however, to balance the playing field for small mortgage banks and allow them to meet consumer demand in the future.

Policymakers must be careful “not to create a new system that eradicates liquidity for all but the few largest players, limits access to the market or narrows options for smaller lenders,” said Loving during the “Housing Finance Reform: Protecting Small Lender Access to the Secondary Mortgage Market” congressional hearing before the Senate Banking Committee.

The current government-sponsored enterprise secondary mortgage market structure “has worked well for community banks,” says Loving, who is also president and CEO of Pendleton Community Bank in Franklin, W.Va.

He called on legislators to make sure new regulation will avoid “requirements that make it too costly for smaller lenders and servicers to participate.”

ICBA is making several specific recommendations including the need to preserve the Federal Home Loan Banks “as an access point to the national secondary market” for community banks, ensuring that only loans meeting the “qualified mortgage” definition should be eligible for securitization, and gradually and transparently transitioning from the current GSEs to a new structure.

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