Any successor to Fannie Mae and Freddie Mac should be structured as a cooperative which would prevent Wall Street firms or megabanks from controlling access to the secondary mortgage market, according to the Independent Community Bankers of America.
“Without an appropriate structure, a secondary market entity would have a strong incentive to offer favorable terms to only the largest lenders,” said Terry Jorde, ICBA’s chief of staff and senior vice president.
Testifying before a forum sponsored by the Bipartisan Policy Center’s Housing Commission and the Jack Kemp Foundation in St. Louis, the ICBA executive stressed that any proposal to reform or restructure the housing finance system should preserve the Federal Home Loan Bank System.
The 12 FHLBs are cooperatives and most of these regional banks offer a secondary market option to their member institutions through the Mortgage Partnership Finance or a similar mortgage purchase program.
“Through these programs, members sell mortgages to their FHLBank but they are also obligated to provide a credit enhancement or “skin in the game,” Jorde said.
“As Fannie and Freddie have imposed new restrictions and unfavorable pricing, community banks are now selling more of their loans to the FHLBank programs,” she added.
