Mortgage bankers are pushing Congress to expand the U.S. government’s support of the market by guaranteeing private-industry home-loan securities and replacing finance companies Fannie Mae and Freddie Mac.
The first step builds off the model for Ginnie Mae, the agency that guarantees payments on bonds backed by government- insured mortgages, according to a report today by the Washington-based Mortgage Bankers Association. The second part involves winding down government-seized mortgage buyers Fannie Mae and Freddie Mac and creating “two or three” new privately funded, government-chartered companies to back individual loans.
“We wanted to put forth a structure we think that has elements in it that respond to a lot of the discussion and debate on Capitol Hill,” Mortgage Bankers Association President John Courson said in an interview.
Putting the “full faith and credit” of the U.S. Treasury behind a portion of the $1.8 trillion non-agency mortgage market would help boost a once-dominant form of home-loan financing that almost collapsed in 2007 as delinquencies rose. The association, which represents about 2,400 lenders, mortgage brokers, commercial banks, thrifts and other companies, said the importance of housing to the U.S. “economic and social fabric” warrants a federal government role in mortgage liquidity.
“There’s a lot of white canvas that has yet to be painted on,” said Courson, who is also president and chief executive officer of Central Pacific Mortgage Co. in Citrus Heights, California. “. We don’t have all the answers. We just wanted to put a structure out there to guide the debate.”
The new structure would remove the credit risk from the mortgages and leave investors with the interest-rate risk, the association said in the report. In a separate statement, the group said the government guarantee is intended only to support “products needed to keep the secondary market for core mortgage products liquid and functioning.”