NEW YORK, NEW YORK (May 3, 2017) – (RealEstateRama) — David H. Stevens, CMB, President and CEO of the Mortgage Bankers Association delivered the following remarks at the opening general session of MBA’s National Secondary Market Conference and Expo in New York City.
[Please Note: These are prepared remarks. Mr. Stevens may add to or subtract from these remarks during the course of his presentation. Portions of the text may be omitted during the speech.]
Good morning! Welcome back to New York City and MBA’s National Secondary Market Conference.
Just a year ago, we were in the thick of one of the toughest political battles for the White House we have seen in many election cycles. Uncertainty resonated throughout the country and our industry as we wondered what the next administration would bring. After Election Day, the country woke to a new president and new Congress. For the first time in 12 years, both the White House and Congress are under Republican leadership, albeit by a thin margin.
President Trump and Congress wasted no time in tackling some very big issues right out of the gate. The president has signed a flurry of executive actions and has been very aggressive in seeking to reduce regulations.
On February 3, Trump signed the Presidential Executive Order on Core Principles for Regulating the United States Financial System. It seeks to empower Americans to make their own financial decisions, prevent taxpayer-funded bailouts, and make regulation efficient, effective, and appropriately tailored. Treasury Secretary Steve Mnuchin was given the directive to review all financial system regulations, determine whether the core principles for regulations are being met, and report back to the President in 120 days. Let the countdown begin!
MBA has already met with administration officials, participated in many briefings, and testified on Capitol Hill to discuss the road forward on regulatory reform.
MBA has consistently supported good regulation that protects consumers, supports a vibrant housing market, and prevents repeating mistakes of the past. Let me be very clear – MBA continues advocating for the right regulatory balance of consumer protection, industry supervision, and enforcement.
With still relatively low mortgage rates, a strong job market, and growing housing demand, we should be experiencing a more robust housing market. But credit still remains too tight for many qualified borrowers. MBA is working on many fronts to alleviate this situation, including, but not limited to, regulatory and FHA reform, and pushing for improved credit models that better reflect today’s households.
All of this while Washington continues political maneuvering on many other issues, including tax reform. I know is this of particular interest to many of you, so let me provide an update on where we are.
As many in Washington expected, the administration recently acknowledged tax reform will not get done by August. But it is still at the top of the list, even though what form a tax reform proposal will take is still anyone’s guess. One thing is clear: housing should not be caught in the political crosshairs. It is too important to too many families, regardless of party, to not finish what we have started. We are pleased the President’s framework recognizes the importance of the mortgage interest deduction and we will continue keeping MBA members informed and your interests protected as more discussions with legislators evolve.
While we have come a long way and made many substantial changes to protect the housing system, GSE reform is the last piece of unfinished business before we can move forward with true housing recovery. On the Hill, within the administration, and among major stakeholders, activities around housing run high showing a lot of promise for housing finance reform.
Both the Senate and House leaders have indicated GSE reform is of the highest importance. The administration has also committed to making changes. Secretary Mnuchin said in an interview a couple months ago with CNBC, “I’m committed that under this administration we’re going to have housing reform so that we don’t just leave these entities the way they are. They’ve been sitting there for too long of a period of time and we need a solution.”
A couple of weeks ago, he reiterated that housing finance reform is “very important” to the Trump Administration, adding, “we are committed to working with the House and the Senate on having a reform package that makes sure that we promote necessary liquidity in the housing markets,”
Leaving GSE reform undone has been the major failure of the post-crisis era. Will it fail again? It shouldn’t. It can’t. But there are some that wish to derail positive solutions and constructive discussions in favor of their own personal motives.
Simply put, recap and release is more like rewind and repeat. It would return the GSEs to their previous state without safeguards to ensure the positive progress during conservatorship remains and without any guarantee the agencies will operate in a manner that protects the taxpayer going forward. This is dangerous ground that destabilizes the system and does nothing to protect our economy, our homes or taxpayers from another bailout. Rather, recap and release is a “solution” designed to protect the personal pocketbooks of a select few.
This misguided dialog threatens to recreate the very crisis it purports to avoid and destabilize the level playing field for all eligible lenders to compete in this market equally. The financial crisis plainly exposed the structural conflicts, misaligned incentives, and other weaknesses associated with the GSE business model and regulatory framework. The result was a catastrophic failure of the secondary mortgage market that required more than $187 billion in direct taxpayer support and a continuing federal commitment of more than $240 billion.
Both Congress and the Administration are pursuing GSE reform legislatively – that is a fact. The teams are on the field and the game is in play, the choice is to either stand on the sidelines and protest or get in the game. MBA plans to get in the game to help craft a solution that works for all lenders, consumers, and the housing finance system. There is no other option but to engage and lead on this subject.
With the GSEs in conservatorship, FHFA has made significant progress mitigating some of the key flaws in the GSEs’ operations that distorted the market in the run-up to the crisis, including bringing parity and transparency to their pricing models, moving toward a single security and developing the common securitization platform. Simply recapitalizing the firms and releasing them – without structural reforms – would threaten to bring back the same flawed incentive structures that contributed to the GSEs’ failure.
Advocating for recap and release especially without significant reform first is crazy. And, you know, the definition of insanity: doing the same thing over and over again hoping for a different result. We have come too far. Let’s move forward not backward and recognize that this is moving forward one way or the other.
In today’s conservatorship environment, all lenders enjoy the benefits of a level playing field where small and large lenders have equal access to the secondary market. Some have suggested that without conservatorship a federal regulator would still keep this structure intact. But that is simply blind faith in the personality of a future regulator and comes with no assurance that this would be the case. We have seen how the GSEs behaved before cutting special pricing and credit deals in exchange for marketshare. This has to be permanently walled off and not left to future uncertainty.
This is not a big versus small lender issue, or Wall Street versus Main Street, as some would have you believe. It’s not lenders versus consumers, as if only one side can win. It’s about ensuring a housing system that first and foremost gives qualified borrowers access to affordable, long-term fixed rate mortgages without allowing the riskier aspects of the pre-conservatorship GSE model to re-emerge.
MBA’s most recent proposal preserves what works in the current system, while enhancing the stability of the market, and protecting taxpayers and consumers. It ensures that mortgage lenders of all sizes and business models enjoy equal access and execution to the secondary market. And it dramatically reduces the taxpayer and government risk while preserving the products and processes so important to all of you.
This is far and away, the most complete and credible GSE reform proposal offered in the post-crisis era. Our proposal is unique because it was created by practitioners in the industry just like you. A strong representation of MBA members actually working in today’s marketplace created this proposal. Residential and multifamily members, banks, non-banks, big and small contributed their ideas. New ideas were vigorously discussed and debated to compose this comprehensive package that provides for the safety and long-term viability of a sound secondary market.
Our proposal is also unique because it is the only one that offers a transition framework – how to get the system from conservatorship, to the new end state. And MBA’s plan is the only one to include a discussion of how to address the thorny issue of how the secondary market can facilitate funding of affordable housing priorities.
Congress never intended conservatorship to be a permanent fix for the secondary market. It was a triage lifeline provided so that the economy could rebound from the worst crisis since the Great Depression. Almost every housing stakeholder agrees that Fannie and Freddie should not remain in government control. But MBA and its members are the ones providing true solutions that will prevent future crisis.
So let’s look at our proposal.
First, Congress must act. Only Congress can ensure the security of the system and ensure a level playing field for all lenders. By reforming the GSEs, Congress can protect taxpayers and consumers; expand access to sustainable mortgage credit; and create an environment attractive to potential investors.
To achieve this, Congress should empower FHFA or a successor regulator to re-charter the GSEs through legislation that also opens the door for new entrants to obtain similar charters. Guarantors would have a defined public purpose of providing sustainable credit availability to the conventional mortgage market to lenders of all sizes and business models. This will ensure a level playing field allowing for lenders of all sizes to compete.
I encourage you to read more about Guarantors in our paper, as it provides detailed information as to the benefits and how they would continue to serve the both the single-family and multifamily markets much like the GSEs currently do today.
Congress is also the only body that can create the Mortgage Insurance Fund (MIF) to guarantee eligible mortgage-backed securities. Congress must establish a new, explicit government guarantee that stands behind the MIF, and this cannot be stressed enough.
Congress should also change the Common Securitization Platform (CSP) ownership. Today, the two GSEs jointly own the CSP. Our proposed end state transfers of ownership of the CSP and its conversion to a government corporation.
And any legislation must include a transition roadmap, with sufficient time and flexibility for completion without disrupting the markets. These congressional changes can set the foundation for reform to a sustainable, more vibrant secondary market.
Over the years, we have continually stressed the need for an explicit guarantee behind the MBS. With the explicit guarantee, investors could be certain that they will continue to receive timely payment of principal and interest even through another economic downturn. This is critical to attracting the global investment needed to ensure a truly liquid market. Experience tells us that the vagueness of an implicit guarantee leads to confusion and provides no real risk security. Prevention through preparation is a much better choice than decision making in a crisis.
Finally, and without going into too much detail because I strongly encourage you to read the full paper, MBA’s proposal includes a plan for affordable housing. We believe that any new system must expand access for affordable mortgage credit; preserve and develop affordable rental housing; and improve liquidity for underserved segments of the mortgage market. America’s housing needs must be served along the full continuum – from the most subsidized government assistance programs, to the fully-private, jumbo mortgage market. Our proposal looks to ensure the new guarantors have incentives that will support, not distort, the market for affordable mortgage credit.
Our proposal also includes suggestions for mitigating the risks of transition as well as suggests an end-state that would encourage multiple guarantors, organized as privately owned utilities. An end-state regulator must have sufficient powers and discretion with respect to capital regulation and other aspects of prudential oversight.
This is a comprehensive plan that secures our system, maintains liquidity in the marketplace, protects taxpayers and homeowners, and finally completes housing reform for a stronger future. Copies of MBA’s plan are available to you at the back of the room as well as online at mba.org/gsereform.
I would encourage you to read MBA’s proposal. Read it cover-to-cover and make your own decisions about our plan. Please call or email me with your questions, concerns and suggestions. MBA’s Chairman Rodrigo Lopez and the Board are standing by as well.
The time for this action is now. Now…before another economic cycle takes its course. Before we forget the lessons and pain of the recent past. Now…before we lose the momentum for complete housing reform. Now…before anyone makes the mistake of rewind and repeat. Now…we need you.
We need the support of everyone in this room and every single one of our members. Join MBA’s voice, vision and resource for complete and secure housing reform.
MBA represents our industry with ONE VOICE. You know us, and DC knows us well. We are the strongest advocacy voice representing the entire real estate finance community. Together, we are a powerful force to ensure a safe and sustainable system that you and your company can thrive in. Get involved. We appreciate you coming to New York this week, but it is more important that you come to DC for a member fly-in or participate in our National Advocacy Conference in June. Legislators and administration officials in Washington must hear directly from you – the practitioners with your fingers on the pulse of America.
MBA has ONE VISION. MBA’s STRENGTH IS OUR MEMBERS. With a strong and unified partnership with its members, MBA works toward our shared vision of a diverse and a competitive market for all industry participants of ALL sizes. Join an MBA committee or task force and help create a strong, sustainable and reliable housing market for the future. We are stronger together. Do not let personal profit seekers and their millions of dollars and divisive rhetoric divide us. Together, we are working for a housing system that protects and benefits everyone.
MBA is your ONE RESOURCE. We are your resource in Washington, but we also combine forces to accomplish your business strategies and goals. With the strength, knowledge and experience of our members, we created the GSE reform proposal. This is a comprehensive guide to reform. As we work toward a successful reforms, not just GSE but also regulatory, use all the resources MBA has to offer. Utilize our economic team and their resources. Stay informed with our weekly Advocacy Updates, MBAInsights or receive daily news information from our NewsLink publications. Go to the MBA website and visit our issue, education and conference resources.
In closing, let me leave you with this…
Housing is bigger than partisan politics.
Housing is bigger than lining the pockets of a select few.
Housing isn’t about one home; it’s about EVERYONE’S home.
Housing is the foundation of America’s way of life.
Housing is America’s economy and today housing is intertwined in a larger web of financial systems all over the world.
MBA has promoted for many years of the need for permanent, sustainable reforms to secure our marketplace. After thorough study of what led to the crash, the Financial Crisis Inquiry Commission determined that the financial crisis was avoidable if the warning signs had not been ignored.
We cannot let Washington ignore the warning signs again. Do not repeat the past. We have the power right now to protect our system. We must act now to ensure the stability of our homes, our neighborhoods, and our economy.
We have a duty, a responsibility to take the right preventative measures now to protect the entire system from fault line catastrophe. Stabilizing and securing the secondary market through appropriate reforms and protections, will provide the rock-solid foundation our economy so desperately needs.
Rob Van Raaphorst
(202) 557- 2799