The Chairman of the House committee that
has been most active in the proposed dismantling of Freddie Mac and Fannie Mae
has released his proposal to reform the secondary mortgage market. Rep. Scott Garrett (R-NJ) who heads the
Financial Services Subcommittee on Capital Markets and Government-Sponsored
Enterprises said his proposal intends to ensure robust private investment in
the market without a government guarantee.
His proposal would also abolish the risk-retention or so-called "skin-in-the-game"
provisions of the Dodd-Frank Financial Reform Act.
According
to a press release from Garrett's office, under his plan the Federal Housing
Finance Administration (FHFA) will be directed to develop several categories of
mortgages and develop uniform underwriting standards for each as well as
standards and uniform securitization agreements, representations, and
warrantees. The process for selling to
investors will be streamlined for securities that meet the new standards and FHFA
will be given authority to ensure underwriting and securitization
standardization compliance.
Garrett said that his proposal would
also ensure "rule of law and legal certainty" by removing conflicts of interest
between servicers and investors, clarifying the rules around the eligibility of
obtaining second lien mortgages and requiring mandatory arbitration of
disagreements between investors and issuers regarding reps and warrants.
Under the proposal regulators would
be prevented from unilaterally forcing investors to reduce the principal of
loans in which they have invested and would allow for the appointment of an
independent third party to act on behalf of investors in mortgage-backed
securities (MBS).
To address issues of transparency
and disclosure the quality of loan level information and disclosures to
investors would be increased and investors would be guaranteed sufficient time
to review and analyze disclosed information before making investment decisions. Lenders would have to disclose pricing
history on securitization deals and an individualized marker would be created
for each loan within a loan package. Servicers
would also be required to use standardized accounting and reposting for any
loan workouts
"Since
taking control of the House in January, we have remained steadfast in our drive
and determination to end the ongoing bailout of Fannie Mae and Freddie Mac,
protect taxpayers from future bailouts, and encourage private capital to
re-enter the secondary mortgage market," Garrett said. "Now that we have
taken the important step of introducing a series of bills to wind down the
government-backed mortgage twins, it's time to start thinking about the ways we
can jumpstart the private market to step in once they're gone."
According to Reuters, Garrett and other Republican
members of the House have already introduced 15 separate bills in an effort "to
chip away at the role Fannie and Freddie play in the secondary mortgage market.
Video: Secondary Mortgage Market Reform