Tag Archives: Mortgage Bankers Association

Mortgage Bankers Ask Permission to Hijack GSE Reform

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The Mortgage Bankers Association issued a concept paper that calls for a board of mortgage industry representatives to “have the authority to direct the scope and immediate priorities of the [Central Securitization] Platform’s development, and the capability to redirect resources from the GSEs’ back offices to aid the project.” (3) So, to be clear, the mortgage industry wants not only to (a) define the scope and activities of the Platform but also (B) tell Fannie and Freddie how to spend their money to do so.  As Christmas is still a ways away, let’s spend some time working through this industry wishlist in the concept paper, The Central Securitization Platform: Direction, Scope, and Governance.

To start, what is the purpose of this mysterious “Platform?” According to the FHFA, it is supposed to “streamline and simplify those functions that are commoditized and routinely repeated across the secondary mortgage market.”(Building a New Infrastructure for the Secondary Mortgage Market, 5-6)

The MBA is calling for the establishment of “a strong panel of industry representatives to guide the development of the Platform.” (1)

But here is where I become nervous: “this Platform is just one piece of a much larger puzzle that impacts borrowers, lenders and the market as a whole. For these reasons, it is critical to appoint an industry advisory panel with real authority over the Platform’s early development. FHFA should establish and convene this panel before any further development is undertaken.” (2, emphasis added) Moreover, the MBA “believes the Platform should ultimately be owned by the industry as a cooperative.” (2)

So we have an acknowledgement that the Platform impacts “borrowers” and “the market as a whole.” But we have a call for a board with real powers that is only made up of “industry representatives.” Where have I heard a similar story like this before?  Oh, the Mortgage Electronic Recording System (MERS), a system designed by the mortgage industry that has been consistently attacked by local government officials and borrowers.

For now, I am agnostic as to whether the Platform is a good idea or not. But I certainly do not believe that only the industry should have the power to define its “scope and activities” and I certainly don’t believe that the industry should have the power to spend Fannie and Freddie’s money to pursue its vision. There are a lot more interests at stake than just the special interests represented by the MBA.

 

 

Reform for Whom?

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David Stevens, the head of the Mortgage Bankers Association, gave an important and revealing speech about the direction of housing finance reform.  It contains some good ideas, but also raises an alarm.  Because the Administration and Congress are at an impasse, Stevens is leading the private sector in pushing for reform of Fannie and Freddie.

While Stevens is proposing some good ideas, the federal housing finance system should be designed — big surprise here — by the federal government first and foremost.  Unfortunately, the private sector can take the lead because the federal government has not.  Housing finance policy abhors a vacuum.

Stevens’ prepared remarks provide a “proposal for transition” for Fannie and Freddie. (3)  The proposal has three steps:

First, it is imperative in this state of overlapping regulatory confusion that the White House name a Housing Policy Coordinator.  This is an immediate need with a simple solution.

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Second, we must have absolute transparency.  FHFA, Fannie Mae and Freddie Mac must stop making market shifting decisions without the input of consumers or the industry.

Finally, we must have a clear path to transition out of conservatorship.   To achieve this goal, we must move toward a single security, encourage additional risk sharing by mandating Fannie and Freddie to accept lower guarantee fees for deeper credit enhancements, and redirect the FHFA platform initiative. (3-4)

The first suggestion — some kind of Housing Czar — is both intuitively right and attractive.  Housing cuts across so many arms of the federal government:  the FHFA, HUD, FHA, CFPB and on and on.  Those arms are frequently at cross purposes.  A Housing Czar could seek to rationalize them.  The second is also attractive, but given the focus of the housing finance industry, one would assume that “industry” would get a lot more input than “consumers.”  And the third suggestion may have merit, but is not the type of decision that we want industry to make — we want the government, the people, to make it.

It is no secret that both parties have punted on housing finance reform.  But it will be a tragedy if they do not recover the ball.  Otherwise, industry will write the rules for future homeowners.  Homeowners will then be playing a game designed for industry to win, not them.