Housing Finance Reform and Regulation of Government Sponsored Enterprises (GSE)

Position

• ICBA supports both administrative and legislative housing finance reform to preserve market liquidity, protect taxpayers, encourage the return of private capital to housing finance, and ensure a stable national mortgage market for all stakeholders.
• ICBA supports FHFA and Treasury efforts to develop a robust GSE capital framework, strong oversight, and supervision from FHFA.
• ICBA urges FHFA and Treasury to resolve Treasury’s ownership based on the Preferred Stock Purchase Agreements (PSPAs) with a goal of allowing the GSEs to access the capital markets to raise outside equity which will help them to fully recapitalize.
• ICBA does not support perpetual conservatorship or complete government ownership and control of the GSEs.
• Housing finance reform efforts must provide robust and equitable secondary market access for lenders of all sizes, ensure no competition from the GSEs at the retail level, and permit retention of mortgage servicing rights on transferred loans.
• ICBA does not support reform proposals that would liquidate and distribute the GSEs’ assets, intellectual property, or infrastructure to the largest national lenders and Wall Street institutions.
• Community banks must be able to sell loans on a single loan basis for cash.
• The GSEs must maintain their specific duty to serve all markets, including small towns and rural areas. Appraisal and underwriting guidelines must be flexible enough to accommodate the unique characteristics of these markets.
• The FHFA Director serves at the pleasure of the President, resulting in significant shifts in policy and supervision as Administrations change. Single-director governance of the FHFA should be replaced with a five-member commission to bring a diversity of views and create a system of checks and balances that would strengthen rulemaking and regulatory consistency.

Background

Community banks represent approximately 20 percent of the mortgage market, and secondary market sales are a significant line of business for many community banks. While many community banks choose to hold most of their mortgage loans in portfolio, robust secondary market access remains critical for them to support mortgage lending demand

The current GSE secondary mortgage market structure has worked well for community banks by providing equitable access, not competing at the retail level, and permitting community banks to retain mortgage servicing rights on the loans they sell.

Housing finance reform must continue to address issues that undermine a level playing field by preventing smaller lenders from participating in the GSE secondary market due to unnecessary requirements that complicate and limit access while driving up costs.