WASHINGTON — The Mortgage Bankers Association released a detailed transition plan Thursday designed to help policymakers remove Fannie Mae and Freddie Mac from conservatorship and turn the government-sponsored enterprises into private guarantors of mortgage-backed securities.

"It provides a clear road map that first prepares the regulatory foundation that will create the infrastructure necessary to implement GSE reform and then transforms the GSEs to guarantors under new charters," said Rodrigo Lopez, the group's chairman.

The plan also would open the door for other guarantors to enter the MBS market. MBA representatives, warned, however, that the transition could take five to 10 years.

"Everything that has been signaled to us is that they are supporting the legislative reform process," MBA President and CEO David Stevens said, referring to the Trump administration's interest in housing finance reform.

David Stevens, president and CEO of the Mortgage Bankers Association.
Failure to do GSE reform leaves unresolved the issue of Fannie Mae and Freddie Mac's thin capital buffers, according to Mortgage Bankers Association chief David Stevens. "We don't want to end up doing GSE reform in a crisis." Bloomberg News

As a result, industry representatives are eager for Congress to get the ball rolling on GSE reform, which could start later this year or early 2018, according to Stevens.

Stevens noted that the Senate Banking Committee has been conducting nonpublic hearings with staff and stakeholders regarding housing finance reform. He said he expects the panel to turn to the issue after it completes work on tax and regulatory reform.

Under the MBA's plan, Fannie and Freddie would be rechartered as the first two mortgage "guarantors" that would be regulated as utilities and owned by private shareholders. Other MBS guarantors could be chartered by the Federal Housing Finance Agency.

Mortgage-backed securities issued by guarantors would carry an explicit guarantee backed by the Treasury Department to insure timely payment of principal and interest to MBS investors.

However, the government backstop would come into play only after all layers of private capital and a newly created Mortgage Insurance Fund were exhausted. The new fund would cover catastrophic risk, "kicking in only in the event of a guarantor failure," according to the MBA's reform plan.

The Community Mortgage Lenders of America welcomed the idea.

"The GSE reform plan issued by MBA is an interesting and useful addition to the discussion around housing finance reform," said Glen Corso, executive director of the group. "We were particularly interested to note MBA’s advocacy in their proposal of the utility model for the GSEs and the principle of fair and equal pricing and access for lenders of all sizes, both concepts which CMLA strongly supports."

Joseph Pigg, senior vice president with the American Bankers Association, said it is reviewing the plan. "ABA looks forward to working with MBA and many others in the industry as well as policymakers to address the unfinished business of GSE reform," Pigg said.

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