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GSEs – Congressional Mortgage Reform




The prospects for action on either the House or Senate floor on GSE reform in the 114th Congress are murky at best. That said, the Community Home Lenders Association (CHLA) will once again be ready to ensure that the interest of small and mid-sized non-bank lenders is high on the priority list of those involved in drafting any GSE reform legislation.

The Community Home Lenders Association worked tirelessly in 2013 and into 2014 to ensure that the interest of small community based lenders was protected in GSE reform legislation under consideration by the Congress.

On the eve of a Senate Banking Committee GSE reform hearing on small lender access to secondary markets, the Community Home Lenders Association (CHLA) weighed in with its recommendations on how to preserve such access for small and mid-size mortgage lenders.

Our objective is to maintain consumer choices through a diverse range of mortgage lenders in a reformed mortgage market. Accordingly, CHLA offered mortgage reform principles and legislative recommendations to achieve this objective.

Preserving a Cash Window. CHLA supports creation of a mutual cooperative to serve small lenders – but also advocates strengthening this to require the new regulator to take “such actions as are necessary” to ensure that it provides competitive access and pricing.  CHLA also advocates making non-bank lenders eligible for any FHLB securitizations that take place.

 Preventing Market Dominance by “Too-Big-To-Fail” entities.  CHLA wants to avoid a market dominated by the same “Too-Big-To-Fail” entities that played a key role in subprime MBS and the housing crisis.  Specifically, CHLA is concerned about market concentration if securities firms can exclusively purchase from their lending affiliates.  CHLA advocates a 10% nationwide market share cap on any securitizer, and a provision that the regulator should pursue policies that allow continued securitization of loans by qualified smaller lenders.

Fair and Equal Treatment of All Mortgage Lenders.   CHLA advocates prohibiting private market players from using the government guarantee to use volume discounts which discriminate against smaller lenders – a practice that resulted in GSEs’ expanding purchases from large – but very risky – firms like Countrywide, leading up to conservatorship.  CHLA also wants protections that capital standards be accurately established – not used as a tool to discourage small and mid-sized lenders from participating in mortgage origination and servicing.

In May, 2014, the CHLA was pleased with the provisions in the Johnson-Crapo GSE Reform bill as reported out of Committee. The bill creates a mutual cooperative in order to preserve a cash window for small lenders – as well as new affiliation restrictions which will help protect small and mid-sized lenders’ ability to continue to securitize loans.

Additionally, the bill addressed another CHLA recommendation by including language that requires an evaluation as to whether the co-op is “fully meeting small lender cash window needs.”

Preservation of an effective cash window for small and mid-sized lenders has been a top priority for the CHLA since introduction of the Corker-Warner bill in 2013.  CHLA had pushed for provisions that were then added to the bill, including capitalization of the co-op by the federal government, use of existing GSE infrastructure, and other provisions to facilitate the cooperative.  Subsequently, CHLA advocated for strengthened protections to ensure that the cash window fully meets small lender needs and other important criteria which we were successful in getting included in the managers’ amendment.

CHLA‘s other top priority has been preserving the ability of small and mid-size lenders to do GSE securitizations, in order to preserve competition for consumers and avoid concentration.  CHLA has been advocating since last year, for changes to prevent the big banks from dominating mortgage origination markets through their provision of risk sharing by affiliate guarantors or securities firms.  CHLA is pleased by the inclusion of provisions to address this issue by restricting vertical integration.   However, we are working to strengthen those provisions. This is because CHLA continues to have ongoing concerns about the pernicious effects of volume discounts in discouraging competition, and about the possibility of increased concentration as mortgage reform takes effect.

While the Committee has provided a strong framework for moving forward on reform of our mortgage finance system, it is important for Congress to focus on protecting consumers by ensuring that small and mid-sized lenders continue to play a key role in serving borrowers and communities nationwide.

[This material has been prepared by the Community Home Lenders Association (CHLA) for informational purposes only, and may not be used for public use without the express written consent of CHLA]