Sen. Bob Corker, R-Tenn., is considering bipartisan legislation that would gradually lower the loan limits on federally backed mortgages, a move that could pave the way to private lending flourishing again.
The $729,750 maximum GSE loan limit is set to decline at the end of September unless Congress passes an extension.
Sen. Corker said he expects private lenders will step up and serve the jumbo market which soon will encompass any new mortgage north of $625,500.
The senator also wants to ratchet the loan limit down further and ensure that private-label MBS issuers have access to a TBA (to be announced) market to achieve best execution.
At a Senate Banking Committee hearing Tuesday, the Tennessee senator asked financial experts if private-label issuers could create a functional TBA market, much like the one used by Fannie Mae and Freddie Mac.
Georgetown University law professor Adam Levitin noted that standardization is the key to creating a TBA market, testifying that it can be done without a government guarantee.
Sen. Corker suggested that Congress could set mortgage standards for the industry. Levitin stressed that investors would require certainties that all PLS issuers are complying with such standards.
The law professor pointed out that prior to the 2008 financial crisis, PLS issuers didn't want standards because it meant smaller margins and lower profits.
Richard Green of the University of Southern California said any standards must "stick" in order for a TBA market to work. "Investors need to have confidence" that lenders and MBS issuers are complying with those standards, the chairman of the USC Lusk Center for Real Estate testified.
"In light of finding out not only how mortgages were underwritten, and the way documentation had been maintained, I think the market is a very, very long way from having that kind of confidence," Green said.
