Magazine article American Banker

Home Builders Support Bank Share in GSEs' Loan-Buy Risk

Magazine article American Banker

Home Builders Support Bank Share in GSEs' Loan-Buy Risk

Article excerpt

Byline: Lew Sichelman, National Mortgage News

Las Vegas - Private-sector institutions that benefit from the government's secondary market support should share in the interest rate and credit risk with Fannie Mae and Freddie Mac, a National Association of Home Builders task force says.

In a report presented at the trade group's annual convention here this week, the task force also recommended that Fannie and Freddie retain their federal backing but be limited primarily to providing credit enhancements for mortgage-backed securities.

The report's policy recommendations were vetted by several committees of the trade group and then ratified by its board Thursday afternoon.

The risk-sharing would be done under a "cooperative structure" loosely based on the Federal Home Loan bank model, said Chellie Hamecs, the builder group's assistant staff vice president for housing finance.

Under the proposal, lenders would be liable for a "significant portion of the risk" in proportion to the volume of loans they sell to the government-sponsored enterprises.

As envisioned by the task force, Fannie and Freddie would be given limited portfolio capacity and then only to accommodate mortgages and housing-related investments that have no other secondary market outlet.

The report saw "serious structural problems" with the nation's housing finance system, including what it called "the inherent conflict" in the traditional Fannie-Freddie business model in which the GSEs are required to pursue a public mission while providing competitive returns to private stockholders. …

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