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FEMIC to Replace GSEs?

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Federal legislation has been introduced to replace the Federal National Mortgage Association and Federal Home Loan Mortgage Corp. with a secondary market regulator.

A new bill, the Housing Finance Reform and Taxpayer Protection Act of 2013, was introduced in the Senate on Tuesday.

The proposed law was introduced by a bipartisan group of senators including Sens. Mark Warner (D-Va.), Bob Corker (R-Tenn.), Jon Tester (D-Mont.), Mike Johanns (R-Neb.), Kay Hagan (D-N.C.), Jerry Moran (R-Kan.), Dean Heller (R-Nev.) and Heidi Heitkamp (D-N.D.)

The legislation would enable the replacement of Fannie Mae and Freddie Mac — as well as their regulator, the Federal Housing Finance Agency — with a new Federal Mortgage Insurance Corp.

In addition to regulating the secondary market, the proposed entity would regulate the Federal Home Loan Banks and provide a catastrophic guarantee for certain mortgage-backed securities.

Mortgage Bankers Association President and Chief Executive Officer David H. Stevens issued a statement calling the legislation “a positive framework on which to begin this crucial debate” and “an important step in redefining the government role in housing finance.”

“Senators Warner and Corker are to be commended for taking a thoughtful and comprehensive approach to drafting a bill to restructure the secondary mortgage market in a way that provides sufficient liquidity to the market so that lenders can offer a full range of sustainable mortgage credit to qualified borrowers through all market conditions,” the MBA chief said.

Stevens noted that the association is eager to work with the Senate Banking Committee to improve the bill for all secondary market players.

FHFA placed the pair of secondary lenders into conservatorship in September 2008. Since that time, U.S. taxpayers have forked over $187 billion to keep the two companies afloat — including $116.1 billion for Fannie and $71.3 billion for Freddie.

However, Fannie has paid out $95.0 billion in dividends to the Department of the Treasury, while Freddie’s dividend payments total $29.6 billion.

A statement from the American Bankers Association commended the senators for introducing the bill, which it said will address the federal government’s role in the mortgage market and resolve the longstanding conservatorships of the government sponsored enterprises.

“This bi-partisan legislation is a positive first step in what is certain to be a long process toward creating a sustainable, rational and limited role for the federal government in supporting and regulating a mortgage market that is appropriately and predominately filled by the private sector,” ABA President and CEO Frank Keating said in the news release. “The bill follows principles long advocated by the ABA, and builds upon the framework detailed by the Bi-Partisan Policy Center’s Housing Commission on which I served.”

But Keating cautioned that the complex nature of the mortgage market means that much negotiation, compromise and cooperation will be required to address the many concerns and interests of a wide range of participants.

Community bankers also commended the introduction of the bill, though they are concerned about the potential of being disadvantaged over bigger players.

“Importantly, continued community bank access to a financially strong, reliable and impartial secondary mortgage market is essential to preserving access to mortgage credit in all areas of the country and supporting the housing recovery,” a statement from the Independent Community Bankers of America said. “All lenders should have equitable access to the secondary market to ensure the continued flow of mortgage credit to consumers nationwide.”

Provisions in the bill would help provide access for community banks to the secondary market without requiring them to take on the additional risk and cost of securitizing loans — something the ICBA said it appreciates.

The ICBA also called on Congress to ensure that community banks are not forced to sell loans through an aggregator that also competes with them.

In addition, the trade group wants to make sure that customer data isn’t used to cross sell financial services. It also wants pricing for a government guaranty to be equal for all market participants regardless of the volume of loans guaranteed, and it doesn’t want Fannie and Freddie’s functions or assets sold or transferred to any other financial institution that aggregates mortgages or mortgage servicing rights or sells consumer financial products.

“Due to the importance of this issue to main street communities, the community banking industry must continue to be closely involved in the process of secondary-market reform,” the ICBA said. “Any and all reforms to the housing-finance system should avoid fostering even greater concentration and risk into a handful of lenders, which would only harm the financial system and consumer choice.”

The ABA’s Keating added, “There is much work yet to be done, but this bill is a strong foundation on which to begin the process.”

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