Dave Stevens, President and CEO of the MBA said, “Recently I’ve been asked on many occasions why MBA continues its policy for transition and GSE reform when the GSEs are profitable and the marketplace is finally stabilizing? Why not just tweak the GSEs’ charters and let them emerge from conservatorship?
But it’s important to peel back the layers and really look at the current market. If we just release the GSEs from conservatorship, are we confident that this is really a healthy market for Independent Mortgage Bankers in the long run?
Let’s look first at the current conventional market. The GSEs are producing record profits with the highest credit quality loans in history. The other side of this news is that they continue to charge steep Loan Level Price Adjustments, Adverse Market Fees and Guarantee Fees that are three times what they were a decade ago.
In the effort to both crowd in private capital and prove the ability to produce profits, this all has to be balanced by the impact to the purchase market and costs to consumers. The GSEs have produced high revenues from the HARP refinance program but the low down payment purchase market has shifted broadly to programs within the GNMA security. As the Federal Reserve stated in its recently released HMDA report: There has been “…almost no risk-taking in the [conventional] mortgage market in the aftermath of the financial crisis.”
Other issues still remain that need to be addressed as we consider the future, issues that we have elevated for the past few years. For example, guarantee-fee parity is still not a reality, despite repeated calls by MBA for the FHFA to move toward a system where fees are based on loan level risks, and not the size or volume of loans sold to the GSEs. Underwriting and pricing transparency are not clear and because of their impact in a QM world, opening the black box credit rules is necessary to evaluate and identify opportunities where credit might be needlessly denied. Additionally, the decision to sell to the cash window or issue MBS should be yours based on best execution, not a judgment made for you, unless there are clear, transparent, counter-party standards that might be cause to force you to a cash only path.
Let me be clear – the GSEs remain a critical component of our housing finance system. But it is equally clear that the structure that led to the consolidation of the market and the GSEs’ eventual demise, and the conservatorship that they now operate under, present opportunities to improve the system and create a healthier, more competitive and stable secondary market for independent mortgage bankers.”
To this I say: I agree that we should work to avoid future debacles like 2008, but the devil is the details. Do we really trust Washington or even the proposals put forth the MBA and others to dissolve the GSEs and create an environment that welcomes back smart private investors? Maybe so, but I’m not convinced.
About The Author
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at firstname.lastname@example.org.