WASHINGTON, D.C. (November 2, 2017) – (RealEstateRama) — David H. Stevens, CMB, President and CEO of the Mortgage Bankers Association (MBA), testified today before the House Financial Services Committee Subcommittee on Housing and Insurance. His full written testimony is available here. Below is Stevens’ oral testimony, as prepared for delivery:
Oral Statement of David H. Stevens, CMB
Chairman Duffy, Ranking Member Cleaver, and members of the Subcommittee, thank you for the opportunity to testify today.
Nine years have passed since the GSEs were placed in conservatorship, and yet their long-term status remains unresolved.
Extended conservatorship is economically and politically unsustainable, and it is an unacceptable long-term outcome. Without comprehensive reform, borrowers, taxpayers, and lenders will all face increased risk and uncertainty about the future.
I will cut right to the chase, the time to act on comprehensive legislative reform is now. Despite the positive steps FHFA has taken as conservator, only Congress can provide the legitimacy and public confidence needed for long-term stability in both the primary and secondary mortgage markets.
That is why, to build on prior work surrounding GSE reform, and in the hopes of spurring legislative action, MBA convened a Task Force reflecting the full composition of MBA’s membership: residential and multifamily, bank and nonbank, small, medium and large. Our Task Force truly represented the full depth and breadth of the entire real estate finance industry rather than the narrow interest of any one specific market segment.
We tasked this group with developing a proposal that would address the future of the Secondary Mortgage Market, and in particular, an end-state model that can also fulfill an affordable housing mission.
Our proposal, which I have included as part of my written testimony, ensures equitable access for all lenders to the secondary market, prohibiting special pricing and underwriting based on loan volume as occurred prior to conservatorship, preserving the cash window and small pool execution options, and preventing vertical integration by the largest market participants.
Our proposal recognizes the need for any comprehensive GSE reform plan to balance three major priorities: consumer cost and access to credit; taxpayer protection; and investor confidence.
To achieve these policy objectives, MBA’s plan recommends recasting the GSEs’ current charters and allowing a multiple-Guarantor model that features at least two entities and preferably more.
Guarantors would be monoline, regulated utilities owned by private shareholders, operating in the single-family and multifamily markets. The core justification for utility-style regulation is that privately-owned utilities attract patient capital and derive certain benefits by virtue of their federal charters.
The Guarantors would be subject to rigorous capital requirements that would provide financial stability without unduly raising the cost of credit for borrowers. These requirements would be satisfied through multiple layers of private capital, including proven means of credit risk transfer.
The implicit government guarantee that existed before the conservatorship of Fannie Mae and Freddie Mac would be replaced with a legislated explicit guarantee at the MBS level only. This guarantee would be supported by a federal insurance fund with appropriately-priced premiums paid by the Guarantors, much like banks pay for FDIC insurance.
Our plan explicitly calls for deeper first-loss risk sharing that is transparent, scalable to all lenders, and capable of limiting taxpayer exposure only to catastrophic risk.
The Task Force also developed recommendations in two areas that have vexed past reform efforts: 1) the appropriate transition to a new system and 2) the role of the secondary market in advancing a national affordable-housing strategy.
Our proposal specifically notes the importance of leveraging the assets, infrastructure, and regulatory framework of the current system. We also believe that any workable transition must utilize a clear road map and be multi-year in nature.
We developed an affordable-housing framework that covers both renters and homeowners of varying income levels.
Our plan suggests other improvements to better serve the full continuum of households, including updating credit-scoring models, and better capturing nontraditional income. Our framework has outcomes that are transparent, well-defined, measurable and enforceable.
Mr. Chairman, as I noted, FHFA has put in place a number of policies and procedures to improve access to the secondary mortgage market and reduce the risks to taxpayers. Now is the time for Congress to act to “lock in” these improvements.
Only Congress can alter the existing GSE charters, establish an explicit federal government guarantee, and create a regulatory mandate to maintain a level playing field.
We cannot go back to a housing finance system that provides private gains when markets are strong yet relies on support from taxpayers when losses occur.
Calls to simply recapitalize the GSEs and allow them to operate without further structural changes are misguided. Under such plans, the post-crisis administrative reforms already achieved could be reversed.
The American people rely on a mortgage finance system that enables them to access quality, affordable rental housing, buy their first home, or build a nest egg to pass on to their children. We owe it to them to proceed with the hard work of reform without delay.
Thank you again for the opportunity to testify. I want to reiterate MBA’s long-standing commitment to working with this Committee on all elements of GSE reform. I look forward to your questions.
Rob Van Raaphorst
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