Plan Reflects Small Lender Perspective, Concerns about Mortgage Market Concentration;
Suggests Modifications to Pending Congressional proposals
WASHINGTON, D.C. – September 29, 2015 – (RealEstateRama) — The Community Home Lenders Association (CHLA) today released an Action Plan that lays out transitional steps to reform Fannie Mae and Freddie Mac, preserve a government guarantee, and protect taxpayers. The Plan was released in response to concerns that some aspects of pending Congressional GSE proposals could promote market concentration and a return of Big Bank practices that contributed to the 2008 housing crisis.
CHLA’s Action Plan recommends the following specific transitional steps to move towards GSE reform:
- The GSE Profit Sweep Should End – Treasury should put profits into a Capitalization Reserve Account, to both provide a short term loss reserve and a long term capital source to ensure the GSEs’ continued critical role as a reliable Cash Window for smaller lenders.
- Congress should direct the FHFA to develop a plan to show how the GSEs could be recapitalized, and whether it recommends doing so.
- GSEs Should Control “Up-Front” Risk Sharing Pilots, with protections against market concentration, including bans on volume discounts and bans on securities firms doing risk sharing MBS from dealing preferentially with bank affiliates.
- FHFA should complete work on a Common Securitization Platform (CSP) & Single Security –but should not turn over the CSP (developed at taxpayer expense) to Too-Big-To-Fail bank/securities firms.
- The Federal Home Loan Banks should not use an explicit or implied taxpayer guarantee for MBS unless all mortgage lenders, including non-banks, can participate on a non-discriminatory basis.
“The Community Home Lenders Association supports Congressional efforts to expand risk sharing pilots, develop a Common Securitization Platform, and stop G fees from being used as a Congressional spending offset,“ said Scott Olson, CHLA Executive Director.” “But CHLA wants to make sure that any Preferred Stock Agreement limits do not undermine the GSEs’ role in providing a small lender cash window, and that up-front risk sharing is not used in a way that leads to a mortgage market dominated by the big banks.”
The CHLA is the only national association that exclusively represents non-bank mortgage bankers. In recent years, non-bank lenders have significantly increased mortgage market share, as many banks have either exited the market or cut back on loans to lower income borrowers. CHLA’s GSE Action Plan reflects concerns that proposals to turn the Common Securitization Plan over to private firms or let banks use “up-front” risk sharing in an anti-competitive manner risks a return to the same big bank practices that led to the 2008 housing crisis.
“Consumers’ access to credit is best served by a competitive mortgage market, with full participation by non-banks and small banks,” said Scott Olson, CHLA’s Executive Director. “CHLA agrees that Fannie and Freddie should be reformed to protect taxpayers – but they should also maintain their key role as a cash window and should be in control of obtaining risk sharing to avoid the big banks controlling the market.”
A new component included in CHLA’s Action Plan is its recommendation that Congress direct FHFA to present a GSE Recapitalization Plan to Congress no later than September 6, 2016, the 8-year anniversary of the conservatorship of Fannie Mae and Freddie Mac. CHLA believes that with Congress gridlocked on housing finance reform, FHFA should act where there is consensus on transitional steps – and it should develop more detailed recommendations on long-term reform, to help Congress in areas where there is not consensus. Other CHLA proposals – setting aside GSE profits, banning anti-competitive practices like volume discounts, and completing the Common Securitization Platform – reflect recommendations CHLA has previously made.
CHLA issued its GSE Action Plan as it convened its semi-annual DC conference today and tomorrow.
Contact: Scott Olson