Realtors, homebuilders and small lenders are warning that a GSE reform bill approved by the House Financial Services Committee could curtail mortgage lending and harm the economy because it does not provide a federal government guarantee to protect MBS investors.
“We believe that, as part of secondary mortgage market reform, the inclusion of an explicit federal government guarantee is critical to ensure the availability of mortgage capital in all market conditions as well as liquidity in the secondary mortgage market for smaller lenders,” according to a joint letter by seven trade groups.
The House GSE reform bill known as the PATH Act (Protect American Taxpayers and Homeowners Act) would wind down Fannie Mae and Freddie Mac over five years and encourage growth of the private-label MBS market.
“First and foremost, the PATH Act jeopardizes the availability of fixed-rate, long-term debt, such as the 30-year mortgage, which has successfully served families for decades. Moreover, without the federal government clearly, and explicitly, offering a guarantee of some mortgage securities, taxpayers and lenders are left with extremely limited options to keep lending available during an economic downturn,” the Sept. 12 letter says.
The CCIM Institute, Community Mortgage Lenders of America, Institute of Real Estate Management, Leading Builders of America, National Association of Home Builders, National Association of Realtors and Society of Industrial and Office Realtors signed the joint letter.
The
At this point, House leaders are not planning to bring the GSE reform bill to the House floor for a vote this year.
In the Senate, a bill crafted by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., that provides a federal guarantee for MBS investors has garnered bipartisan support.
But some small lenders are concerned the Corker-Warner bill would allow the largest banks to dominate the secondary market after Fannie and Freddie are liquidated.
Under the Senate bill, a MBS issuer cannot gain more than a 15% aggregate market share. The Community Mortgage Lenders of America contends the 15% cap applies only to third-party loans. A bank with a large retail network could garner a larger market share of the secondary market. The Community Mortgage Lenders of America would like to see a “hard cap” of 10% that counts third-party and retail originations, according Rob Zimmer, head of external affairs for the CMLA.
"Small lenders, especially mortgage bankers with no deposit insurance, will be driven out of business by their larger competitors if mortgage secondary reform measures do not include explicit safeguards,” Zimmer said.
