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 the Federal Housing Finance Administration’s (FHFA’s) recent actions in coordination with the Treasury to take steps to end the destructive sweep of GSE earnings and to require the GSEs to start retaining their earnings to rebuild their capital.
ICBA supports FHFA and Treasury efforts to develop a path forward, which include 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.
ICBA does not support reform proposals that call for the creation of additional government-sponsored guarantors to compete with the GSEs or use of the Government National Mortgage Association (GNMA) to provide a government guaranty on GSE mortgage-backed securities (MBS).
Community banks must be able to sell loans on a single loan basis for cash, effectively hedge interest rates, and offer rate-locks at low cost.
Secondary market sales must be relatively simple. A process that requires complex credit enhancements, for example, will disadvantage community banks and other small lenders that lack the scale or resources to obtain and manage such enhancements from multiple parties.
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.
ICBA is committed to preserving the 30-year fixed-rate mortgage for creditworthy customers in all markets.
ICBA supports a government guaranty on GSE-issued mortgage-backed securities (MBS) as catastrophic loss protection that is fully and explicitly priced into the guarantee fee and the loan-level price.
As a consequence of a recent Supreme Court ruling, the FHFA Director now serves at the pleasure of the President, which could result 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.
Community banks represent approximately 20 percent of the mortgage market, and secondary market sales are a significant line of business for many community banks. According to Home Mortgage Disclosure Act (HMDA) data, approximately two-thirds (64 percent) of ICBA banks sell half or more of the loans they originate on the secondary market.
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. This is particularly true for fixed-rate lending. For a community bank, it is prohibitively expensive to hedge the interest rate risk that comes with fixed-rate lending. Secondary market sales eliminate this risk.
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.
The goal in reforming the housing finance system must be to address the problems of the old system and restore balance among portfolio lenders, small financial institutions, and large lenders. Policymakers must be careful not to create a system that eradicates liquidity for all but the largest players, limits access to the market, or narrows options or imposes requirements that make it too costly for smaller lenders and servicers to participate.
ICBA urges the FHFA Director and the Treasury Secretary to work to resolve the obstacles to recapitalization of the GSEs and develop a plan for them to exit conservatorship by a certain date. Perpetual conservatorship is harmful to the long-term health of the GSEs and the mortgage market more broadly. The GSEs are private companies that are publicly traded. FHFA control of these companies under a conservatorship that has lasted beyond 14 years continues to set a bad precedent for any regulated entity.