I was glad to see so many of our members at our 2015 Annual Convention in San Diego this week. Nowhere else do more than 4,500 leaders in the real estate finance industry come together to learn from one another and survey the regulatory and lending landscape.
Among the many topics and discussions this week, the future of the GSEs was one of the bigger themes. Everyone from Michael Stegman of the White House to FHFA Director Mel Watt, offered opinions and policy considerations about the secondary mortgage market.
Stegman’s remarks were most notable for reinforcing the White House’s clear position that the GSEs must not be recapitalized and released from conservatorship without comprehensive reform of the GSEs’ charters. The White House clearly believes, as MBA does, that structural reform is a critical piece to ensure that lenders of all sizes and business models have equal access to the secondary mortgage market.
Along the same lines, one of the main points I emphasized during my speech at the conference, and which I reiterated in a meeting with Director Watt, was the need for FHFA to reconsider the GSEs’ current risk sharing model. Specifically, they need to embrace upfront risk sharing so that all lenders, big and small, can be active participants in the program. Currently, unfortunately, upfront risk share transactions are only being offered to a handful of institutions, leaving thousands of medium and small lenders out in the cold.
That is why MBA has consistently promoted upfront risk share that works for all lenders no matter their size. It’s also why we’ve proposed mortgage insurance and recourse as part of the risk share structure. After all, upfront risk share would bring more competition to the market, could lower costs to consumers, and would allow all lenders to participate on an equal, level playing field.
The White House seems to be in the same place, as Stegman remarked, “front end credit risk transfer pilots could determine whether the cost of lender recourse, reinsurance, or deeper MI coverage plus reduced G-fee is less or more than the standard applicable G-fee charged by the enterprises today.”
Let’s face facts. The GSEs will remain in conservatorship until Congress passes and the President signs into law housing reform legislation. And, FHFA has the authority to change the GSEs’ operating procedures without legislative action. So, in order to benefit taxpayers, homebuyers and lenders of all shapes and sizes, FHFA should act now and implement a comprehensive and sustainable risk sharing model. Otherwise, the housing economy will never reach its full potential.
For more about this topic and others, check out my speech from the conference.