WASHINGTON, DC—Calling GSE reform “the last piece of unfinished business from the 2008 financial crisis,” the Mortgage Bankers Association on Thursday released a white paper outlining its plan for doing so. MBA's proposal would bring much higher levels of private capital into the secondary mortgage system, while preserving what works in the current system: namely, 30-year fixed rate single-family mortgages, the TBA market and long-term multifamily financing options.

The association's view of GSE reform would replace the implied government guarantee of Fannie Mae and Freddie Mac with an explicit guarantee at the MBS level only, supported by a newly instituted Mortgage Insurance Fund with appropriately priced premiums. It would also bring an element of competition into the picture with multiple guarantors that would compete on operations and systems development, customer service, product parameters and innovation, and pricing and execution.

Such a framework wouldn't be erected overnight, and the MBA plan outlines the transition from the current system to its end state. In phase one, among other measures, the Mortgage Insurance Fund would be created and new entity structures would be formed. Phase two would entail the implementation transfer of GSE assets, the regulatory chartering of guarantors and the winding-down of the GSEs. The government would sell its interests in the guarantors to private investors in phase three.

Titled GSE Reform: Creating a Sustainable, More Vibrant, Secondary Mortgage Market, the white paper “not only lays out a detailed end-state solution that will work for the residential and multifamily markets, but also the transition steps to accomplish this goal,” says Rodrigo Lopez, MBA's chairman and executive chairman of NorthMarq Capital. “We look forward to working with Congress and the Administration to find a permanent, sustainable solution to the government's role in housing finance that doesn't repeat the mistakes that led to the crisis.”

Both the new white paper and its predecessor, which MBA released this past January, derived from the work of MBA's Task Force for a Future Secondary Mortgage Market. The task force consisted of individuals from MBA member companies representing a broad cross-section of the residential and multifamily real estate finance sectors. The white papers are available for download here.

Vornado Realty Trust

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MBA Gets into Specifics on GSE Reform

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