Magazine article Mortgage Banking

Senate Committee Hears Industry Views on GSE 'Bright Line'

Magazine article Mortgage Banking

Senate Committee Hears Industry Views on GSE 'Bright Line'

Article excerpt

A BRIGHT LINE HAS BEEN DRAWN BETWEEN supporters of efforts to reform secondary market giants Fannie Mae and Freddie Mac, as industry groups testifying before the Senate Banking Committee came out for and against Congress drawing a line between the secondary and primary mortgage markets.

The mortgage, banking and housing groups appearing before the committee all appear to agree on the need for a strong regulator to ensure the safety and soundness of the GSEs. But the proverbial devil in the details comes into play when it comes down to definitions of the primary and secondary mortgage markets.

The Mortgage Bankers Association strongly backs putting in the legislation a bright line that would define what constitutes the secondary market and thus would be permissible business activities for the GSEs. The primary market would be off-limits for the two GSEs, if the bright-line concept finds its way into the reform measure.

The Federal Housing Enterprise Regulatory Reform Act of 2005 (S. 190) would establish the Federal Housing Finance Agency (FHFA) as an independent agency, with regulatory authority over Fannie, Freddie and the Federal Home Loan Banks (FHLBs).

The new agency would have general regulatory and enforcement authority over the GSEs and the FHLBs. The bill would, among other things, direct the regulator to draw a "bright line" separating the primary and secondary mortgage markets.

At the hearing, panelists took sides on opposite sides of the bright-line provision.

Although MBA has been advocating for the need for clarity between the primary and secondary markets for years, MBA Chairman Michael F. Petrie, CMB, said Fannie and Freddie's "longstanding lack of clarity" underscores the need for a bright line.

"The charter acts of the GSEs as they exist today do not adequately define where the primary market ends and the secondary market begins," said Petrie. "[These] mission-clarification provisions would, for the first time, add certainty to the housing finance markets in the important area of Fannie Mae's and Freddie Mac's activities and investments."

Petrie shared a panel with representatives of the Independent Community Bankers of America (ICBA), the National Association of Realtors (NAR), the Housing Policy Council, the National Association of Home Builders (NAHB), the National Association of Mortgage Brokers (NAMB), America's Community Bankers (ACB) and the Low Income Investment Fund. …

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