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Mba Plan To Replace Fannie & Freddie

Discussion in 'Fannie Mae, Freddie Mac, USPAP' started by Mike Kennedy, Sep 5, 2009.

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  1. Mike Kennedy

    Mike Kennedy Elite Member

    79
    Sep 28, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    New York
    MBA Releases Plan to Replace Fannie Mae and Freddie Mac September 2, 2009
    The Mortgage Bankers Association on Wednesday morning released a working paper on rebuilding the secondary market — a plan that does not include the continued existence of Fannie Mae and Freddie Mac in their present form but instead relies on the creation of a small number of mini-GSEs that could be in co-operative form. [​IMG] Under the plan, the creation of mortgage-backed securities would rely on risk-based premiums paid into a federal insurance fund with loan level guarantees provided by what the trade group calls a "small number of privately-owned government-chartered and regulated mortgage credit-guarantor entities" or MCGEs.

    MBA wants ownership of at least one of the MCGEs to be in a co-op form with mortgage lenders as shareholders. "A co-op could be attractive to mortgage bankers," said MBA chief executive John Courson. (Ownership of Freddie Mac stock was limited to savings and loan associations under a co-op structure until 1989, when the company first sold shares on the New York Stock Exchange.) Even though Fannie and Freddie would no longer exist under this blueprint for the secondary market their "technology, human capital, standard documents and relationships" could serve as the foundation for the new MCGEs, MBA says.

    The plan — which played a role in driving down the GSEs' share price on Wednesday morning — was drafted by a special task force of MBA members including top executives in the industry who work for lenders, servicers, mortgage insurance firms, title companies and other players in the business. Fannie and Freddie declined to comment on the proposal. Some members of the task force work for companies that were once part of FM Watch, a lobbying group whose mission was to curtail the powers of Fannie and Freddie.
     
  2. Randolph Kinney

    Randolph Kinney Elite Member
    Gold Supporting Member

    77
    Apr 7, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    No doubt that the existing GSEs controlled by Congress with polices that curry favor with low income voters will have to be maintained with the new entities. And, in order to sell MBSs to investors, there has to be an explicit guarantee by the government of these securities to maintain the liquidity, safety and low interest rates.

    Risk based insurance premiums assessed against the new entities is not going to keep interest rates low as this cost will be passed onto all the lenders, which the depository lenders are already under the FDIC insurance premiums for deposit insurance. It will not assure investors that there will enough money in the fund to cover losses in the future even with a 70% LTV.

    If there is only private insurance backing MBSs, the investors will demand an interest rate that will be very high to guard against a government forced loan modification sticking the investor with the loss.

    Given the abuses of the past with lender due diligence, mortgage underwriting and appraisals, I don't see anything that will prevent that with this proposal.
     
  3. George Hatch

    George Hatch Elite Member

    103
    Jan 15, 2002
    Professional Status:
    Certified General Appraiser
    State:
    California
    If they want to set it up with their own money then by all means, go forth and prosper. I think a market-driven mortgage banking system could eventually become the dominant model, relegating the GSE role to that of providing the entitlement lending our society seems to support.

    As I understand it, the MBAs problem is that there is no secondary market for MBS vehicles that are not explicitly backed by the U.S. printing presses. The mortgage banker system has burned all the investors beyond recognition via their previous excesses. Their lack of marketability in the secondary market means that they are not among the primary stakeholders and therefore their interests are subordinate to everyone else's interests.

    Really, as the internet age unfolds, the role of loan originator is becoming more and more superfluous to the transaction. Consumers can do their own shopping and comparisons online, and with the help of some hourly-paid processors they can build and submit their own loan applications.

    The loan originators are the one party in the mortgage market that the GSEs service that is most readily expendable. It's just a matter of time. That's why they want to rebuild the system to revolve around them, so as to extend their remaining economic life. It's like allowing a tapeworm to design its own host.

    No matter who is in charge, somebody is going to have to enforce the rules. The existing GSE setup is not a problem if they enforce their own rules and if their regulator has both the will and the means to make them do it. Likewise, an MBA-cooperative GSE system would have to rigorously enforce their own rules amongst their own members.

    Does anyone here seriously think they're up to that?
     
  4. Randolph Kinney

    Randolph Kinney Elite Member
    Gold Supporting Member

    77
    Apr 7, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    The government can't even follow its own rules or enforce regulations on the lenders under its control. Why would anyone believe the MBA could overcome its own bias and self-interest?
     
  5. Caligirl

    Caligirl Senior Member

    0
    Jan 27, 2006
    Professional Status:
    Certified General Appraiser
    State:
    California
    Doesn't matter what I *think*-how many MB licenses were actually revoked by MBA? There's your answer in black and white. :)
     
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