The mortgage purchase programs developed by the Federal Home Loan Banks have performed better than the loans Fannie Mae and Freddie Mac purchased during the housing boom, according to Federal Housing Finance Agency acting director Edward DeMarco.
Going forward, the 12 regional banks could develop more innovative
The FHLB System “can help preserve the option for local financial institutions to make mortgages in their communities and hold those mortgages on their balance sheets,” DeMarco said at a FHLB directors' conference Tuesday.
The GSE regulator pointed out that it is “doubtful” the FHLBs will be allowed to issue guaranteed MBS on his watch.
However, they could play an important role in developing a new secondary market envisioned by the acting director.
This new securities market would be based on standardization—not on government guarantees. Mortgage securities would be “issued or structured in such a way that market participants themselves advance the capital to absorb credit risk,” DeMarco said.
To help smaller institutions sell loans into that new market, the FHLBs could act as aggregators.
“The aggregation function would seem to be a clear role for the FHLBanks in this type of approach,” DeMarco said.
