The Mortgage Bankers Association (MBA) has released the fifth and last in a series of concept papers outlining its suggestions for immediate steps Freddie Mac, Fannie Mae (the GSEs), and the Federal Housing Finance Agency (FHFA) can take to ease the transition to a new secondary market. The papers have largely focused on the plan outlined by FHFA for developing a Common Securitizaton Platform. FHFA says this Platform will create efficiences in the securitization process by standardizing certain rules-based functions.
Previous Papers in this Series:
In the concept paper released today MBA said that the timeline and scope of the proposed Platform have expanded considerably since the idea was announced and this growth is causing concern that it will ultimately not meet the needs of the market. Despite occasional updates on the project, MBA says FHFA has not established a formal and transparent process with which to communicate with stakeholders. Thus inconsistent messages are coming from FHFA and the GSEs. MBA said it also has concerns regarding the Platform's governance and ownership structure.
MBA said it believes the Platform should ultimately be owned by the industry as a cooperative and transition to a cooperative structure should begin now by giving the industry a place at the table to guide early development. It agrees with FHFA Acting Director Ed DeMarco that the Platform should not assume any credit or interest rate risks, though it will have operational risks and MBA said it believes it should be regulated by the Federal Reserve due to its central role within the payments system.
Because of the absence to date of a formal and transparent mechanism for input and because the Platform is just one piece of a larger puzzle, MBA says it is critical to appoint an industry advisory panel with real authority and to convene it before further development is undertaken.
The Association says it also has concerns about the Platform's technical design. Hiring of private contractors should be conducted in an open and transparent manner and stakeholders should be able to evaluate the service providers that will be at the heart of the agency securities market. "The current lack of transparency surrounding the bidding process has the possibility to shut out much of the expertise needed to ensure that this Platform lives up to its potential," the paper says.
MBA says that it and its industry parties have strongly argued that the core of the Platform project should remain modest to start in order to maximize the chance of success. It should be revised to focus on developing a quality replacement for the GSEs' current securitization activities. While FHFA believes that the Platform could serve as an optional service for private issuers, MBA says this should be a goal only after the core agency functionality is completed. "Affording private issuers the option to use the Platform would ensure that market standards are driven by competition, benefiting consumers, investors, and lenders alike. This option would also help level the playing field by allowing smaller issuers to efficiently access the secondary market."
The paper says that FHFA's initial goal of replacing obsolete systems at the GSEs once rather than twice was the right one however there has been little mention of cost savings after FHFA's initial presentation. Instead it appears that the current plans could add to costs for the system as a whole at least near term. The Platform's development should be realigned with the original goals of cost savings and efficiency.
The Platform should be built from the start to facilitate the delivery of small lots (as few as single loans) into multi-lender pools. This is an important pre-condition for a vibrant, competitive mortgage market that works for borrowers, investors, and the American taxpayer, MBA said.