A recent opinion piece by Bill Giambrone, "Small Lenders need to be in the room where GSE debate happens," shortchanges our segment of the mortgage industry and grossly mischaracterizes the Mortgage Bankers Association and the GSE reform plan offered by the MBA's Task Force on a Future Secondary Mortgage Market.
I was on the task force, and as one of the approximately 650 MBA members who are independent mortgage banks, community banks, and credit unions, I can assure my industry colleagues that not only were small lenders and independent mortgage companies at the table, in many cases we were spearheading the reforms incorporated into the final proposal.
GSE reform is the last piece of unfinished business from the financial crisis that rocked our industry and our economy. This is not some abstract economic policy debate for pundits to keep themselves busy; we all have a vested interest in the future structure of Fannie and Freddie. Why? Because the secondary mortgage market affects millions of American homebuyers and is the lifeblood of small, independent lenders.
The op-ed correctly notes that the real estate finance industry is not "one size fits all." That's why the MBA's plan centers on ending the duopoly that Fannie and Freddie have over the secondary mortgage market in a way that ensures equal access to the secondary market for lenders regardless of size or business model.
The MBA's plan breaks up the risk being consolidated in these two institutions, allowing secondary market guarantors, under strict rules of operation, to compete on innovation, product parameters, service, and other factors. This competition further benefits small lenders especially, and most importantly, it benefits our consumers.
Fannie Mae and Freddie Mac have been under government conservatorship for nine years. The old structure served an initial purpose, but is not sustainable for the long term. One of the key reasons the system failed was that Fannie and Freddie offered special deals to certain lenders in an effort to gain market share. This practice resulted in huge volumes of underpriced risk that contributed significantly to the GSEs' failure, necessitating the $187 billion in direct taxpayer support during the crisis, with a continuing federal commitment of $250 billion.
While it's not sustainable, the ongoing federal commitment is a backstop which gives us time to finish the reform and end conservatorship. A small number of short-sighted folks, some heavily misled by predatory hedge fund investors, want to kick the can down the road and put off reform.
Fortunately, members of Congress seem to be in bipartisan agreement that this arrangement requires modifying. Only Congress can make the necessary changes to the structure of the GSEs and the secondary market overall to avoid a rewind and repeat of the practices that marginalized small lenders and contributed to the housing market crash and the Great Recession.
In fact, the MBA's plan creates a regulatory oversight model that locks-in the recent small lender gains that the MBA successfully advocated for — level G-fees, no special underwriting deals, fair access to both cash and securities executions, and limits on vertical integration in the new guarantors. Recapitalization of the GSEs without these reforms risks a return to the GSEs' old market-share aggregation model.
No other plan proposed so far levels the playing field for small community banks, credit unions and independent mortgage banks as much as the MBA's. Consumers benefit from competition and having an array of lenders of different sizes or business models provides borrowers with choices when it comes time to purchase or refinance a home.
GSE reform will stabilize the housing market for decades to come and close a chapter from the financial crisis. There is much more debate that needs to happen and much more work to be done. Policymakers want to hear the industry speak with one voice, representing the entire market, not niche groups who only represent a few companies in one specific segment of the business.
In fact, any effort to drive a wedge between lenders plays right into the hands of the investors who want to rebuild Fannie and Freddie into the same unsustainable behemoths prior to the crisis. These investors have little interest in creating a healthy, sustainable mortgage and housing market. Their interest lies only in lining their own pockets.
The entire industry must be represented in the critical reform effort. The MBA has made its contribution with the most detailed and comprehensive plan yet, and the only one that accounts for all aspects of the business, from the largest banks to independents to the multifamily side of the business. We are working as a team together. And we hope the relevant stakeholders will support our efforts to represent lenders of all sizes as we push for meaningful housing finance reform.