Maintain Competitive Mortgage Market for Small Lenders
Washington, D.C. (July 20, 2017)—The Independent Community Bankers of America® (ICBA) today expressed to Congress the importance of passing judicious housing finance reforms that allows continued access for community bank lenders. Testifying at the Senate Banking Committee’s hearing, “Housing Finance Reform: Maintaining Access for Small Lenders,” Jack Hopkins, president/CEO at CorTrust Bank in Sioux Falls, S.D., advocated for Congress to enact reforms that promote beneficial competition and avoid dangerous concentration in the mortgage lending industry, particularly in regard to government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
“ICBA strongly supports reform, but it is essential to borrowers and the broader economy that the details of reform are done right,” Hopkins said. “The worst outcome in GSE reform would be to allow a small number of mega-firms to assume the size and scale of Fannie and Freddie under the pretense of creating a private sector solution strong enough to assure the markets in all economic conditions. Any solution that promotes consolidation is only setting up the financial system for an even bigger collapse than the one we’ve just been through.”
The GSE secondary market must continue to be impartial and provide competitive, equitable, direct access for all lenders on a single-loan basis that does not require the lender to securitize its own loans. Pricing to all lenders should be equal regardless of size or lending volume.
To address housing finance reform, Hopkins presented several key features of a successful secondary market and outlined legislative reforms. These include:
- Congress creating an explicit government guaranty on GSE mortgage-backed securities (MBS) supported by a catastrophic mortgage insurance fund that the Federal Housing Finance Agency (FHFA) can administer, and
- Congress changing the GSE corporate charters from the current government-chartered, shareholder-owned, publicly traded companies, to regulated financial utilities that are shareholder owned.
Hopkins also offered administrative recommendations for reform, which include:
- requiring the FHFA to end the net worth sweep of revenues to Treasury and require both Fannie Mae and Freddie Mac to develop capital restoration plans,
- having FHFA review and approve capital plans, establish prudent risk based capital levels as required by the 2008 Housing and Economic Recovery Act (HERA) and set reasonable timeframes and milestones for achieving re-capitalization goals,
- requiring FHFA to monitor the GSEs’ performance against their respective plans and release each GSE from conservatorship as they become well-capitalized,
- mandating GSEs to complete construction of the Common Securitization Platform and issue their respective MBS from the platform, and
- deferring the launch of the Uniform Mortgage Backed Security (UMBS) until both GSEs are recapitalized and released from conservatorship.
ICBA recently released a white paper that discusses its principles and recommendations for reforming Fannie Mae and Freddie Mac to support community bank lenders’ continued access to the secondary mortgage market.
The Independent Community Bankers of America®, the nation’s voice for more than 5,800 community banks of all sizes and charter types, is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education and high-quality products and services. For more information, visit ICBA’s website at www.icba.org.