The National Association of Home Builders is exploring several ideas to replace Fannie Mae and Freddie Mac in the secondary market, including one option that would give the 12 Federal Home Loan Banks the green light to securitize safe and sound conventional mortgages.
NAHB chairman Barry Rutenberg noted that the regional FHLBs are focused on serving their bank members and currently purchase mortgages for their portfolios. "It would not be that far of a step to go into securitization," he told National Mortgage News.
Late last week the trade group issued its "Comprehensive Framework for Housing Finance System Reform" report, calling for the creation of Home Finance Entities (HFEs) that would purchase and securitize mortgages.
Lenders selling loans to the HFEs would be required to maintain capital to cover a portion of the risk on the pooled mortgages.
Participating originators “would also pay a premium into an insurance fund to provide additional protection for the MBS investors," the NAHB white paper says. The federal government, however, would be the final backstop for the MBS.
The FHLBs could be HFEs, according to NAHB. "A parallel but separate framework could be created within the FHLBank System to purchase and securitize mortgages."
Mortgage banking companies could become "special FHLB members" and purchase stock like regular members -- banks, thrifts, credit unions and insurance companies.
"This arrangement ensures that a FHLB's capital reserves expand and contract in relation to its lending activity," the NAHB says.
HFEs could also be created out of the infrastructure left behind by Fannie and Freddie. But the FHLB System is a "great way to get a head start," Rutenberg said.
The Gainesville, Fla., builder noted that NAHB is trying to bring more options to the table and its view will evolve as the debate over the future of the housing finance system continues.
