ICBA Policy Resolutions for 2013
ICBA Priorities for 2013
GSE SECONDARY MARKET REFORM
- Reforms of the housing finance system must be structured so that they do not disrupt recovery of the housing market.
- Community banks need the continued existence of a financially strong, reliable, impartial secondary market for residential mortgages.
- The housing Government Sponsored Enterprises (GSEs), or any successor entities, must continue to be an aggregator of whole loans that does not directly compete with community banks at the retail level and must continue to permit community banks to retain mortgage servicing rights on the loans they sell.
- All lenders should have equitable access to the secondary market regardless of size or volume.
- To ensure the continued flow of credit for housing, some type of government tie to the secondary market is necessary. Any support should be paid for by the participants who use the secondary market services of the GSEs.
- The housing GSEs’ conflicting requirements of a public mission and private ownership must be eliminated.
- Loan pricing by the housing GSEs to community banks should be on equal terms with the largest mortgage originators.
- ICBA strongly opposes the use of GSE Guaranty Fees for any purpose other than funding the guaranty of principal and interest payments on GSE issued securities.
- The secondary market entities must have a limited mission focused solely on supporting residential and multifamily housing in all communities in the U.S.
- The function of Fannie Mae and Freddie Mac should not be incorporated into the Federal Home Loan Bank (FHLB) system.
- The function and assets, including any patents, of the housing GSEs, or any assets owned by the FHFA that support GSE operations, should not be sold or transferred to any other financial institution that aggregates mortgage loans, mortgage servicing rights and/or sells financial products to consumers.
- GSE preferred shareholders must be made whole.
- Mortgage servicing requirements from the GSEs should not conflict with the community bank business model and cost structure. Any changes to mortgage servicing standards or compensation should not encourage additional consolidation of the mortgage servicing business in the largest aggregators.
- ICBA objects to the housing GSEs’ aggressive demands on community banks for the repurchase of transferred residential mortgages for minor, technical violations of underwriting agreements that had no bearing on loan quality at the time of underwriting.
Fannie Mae and Freddie Mac have played and continue to play a vital role in supporting residential mortgage lending and homeownership, particularly in these difficult times when other sources of credit have dried up or been priced at above market rates. Their future must be resolved in a manner that ensures the continued existence of a strong, impartial secondary market for residential mortgages.
Small Lender Access. As the Administration and Congress look to the future structure of our residential mortgage secondary market entities, the GSEs or their successors must not be allowed to directly compete with the private sector at the retail level, and they must provide equitable access and pricing to all lenders regardless of size or volume. Lenders large and small need secondary market access to best serve consumers. Some proposals would result in further dominance of the housing finance system by a handful of large financial institutions. Smaller lenders must have access to the secondary market without going through their direct competition. Further, the existence of more than one secondary market entity fosters competition, providing better access for community banks and lowering mortgage rates and closing costs for consumers.
Market Stability. The secondary market must be financially strong and reliable with strong regulatory oversight that ensures it operates within its mission and in a safe and sound manner. The conflicting requirements of a public mission and private ownership must be eliminated in the future secondary market. Congress must ensure a secondary market with government ties continues to exist. The government ties to Fannie Mae and Freddie Mac kept money flowing through the conforming mortgage market and provided liquidity and market stability when other sectors stopped functioning. The secondary market entities need to have the operational flexibility to hold mortgages when market conditions dictate, along with securitization authorities. Any changes to the GSEs should not impact the trillions of dollars of GSE mortgage backed securities outstanding.
Federal Home Loan Banks. ICBA would have significant concerns with any proposal to incorporate the function of Fannie Mae and Freddie Mac into the FHLB system. While community banks have benefitted from the existing FHLB secondary market programs, the primary business of the FHLBs must remain advances.
GSE Preferred Shareholders. When Fannie Mae and Freddie Mac were placed in conservatorship, many community banks were injured when the value of the GSE preferred shares they held plummeted, wiping out capital that may have been available prior to the normal losses experienced in the recession. Community banks purchased these shares with the support of their regulators. This injustice must be corrected by restoring the dividend payments on the preferred shares, paying injured holders the amount of suspended dividends, and compensating them for all capital losses.
Repurchase Demands. Fannie Mae and Freddie Mac are making increasingly aggressive demands for the repurchase of delinquent residential mortgages based on minor, technical violations of underwriting agreements. These loans were underwritten and documented based on the GSE guidelines in place at the time and as directed by the GSE automated underwriting systems. When the GSEs increase loan repurchase demands based on increasingly negligible violations, community banks become very concerned about the risks of selling loans and the impact of repurchases on their capital, making them less willing to offer mortgages to their customers. Of particular concern is the availability of credit in rural and underserved communities that are almost exclusively served by community banks. Recently announced changes to the GSEs’ representation and warranty obligations are positive steps towards creating certainty with regard to a bank’s repurchase liability on loans sold after January 1, 2013. However, these changes do not address repurchase demands on loans sold prior to that date. ICBA believes there should be some statute of limitations on these loans that would shield originators from repurchase demands.
Staff contacts: Ann Grochala, Ron Haynie, Renee Rappaport and David Lynch
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