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Blog: Small lenders weigh in on GSE reform

Small lenders got their turn this past week to speak out on reform of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

The Senate Banking Committee held its second hearing within the past month. Six speakers representing small banks and credit unions testified.

smalllendersThe hearing itself didn’t provide any drama. Most small lender trade groups issued position papers on GSE reform months ago, so there was nothing new here. Committee members, particularly Democrats, are paying attention to what these groups have to say, however, and no GSE reform bill will advance without the support of Democrats.

Speakers at Thursday’s hearing testified on behalf of the American Bankers Association (ABA), Credit Union National Association (CUNA), the National Association of Federally-Insured Credit Unions (NAFCU), the Independent Community Bankers of America (ICBA), the Community Mortgage Lenders of America (CMLA) and Community Home Lenders Association (CHLA).

The smaller trade groups tend to be against proposals that would greatly overhaul the present system of housing finance. Fannie and Freddie, which were taken over by the government in 2008, have been substantially reformed while in conservatorship.

Most of the small trade groups would be happy with a narrow bill that wires into the law reforms made by the GSE’s regulator, the Federal Housing Finance Agency. FHFA Director Mel Watt’s term is up at the end of next year, and so the new Trump appointee will have flexibility to make changes. The small lenders would need Congress to enact legislation that would prohibit this regulator, and future regulators, from making changes that would give big banks and lenders an advantage.

The small lender associations want to ensure that the post-conservatorship version of Fannie and Freddie continues to buy mortgages from independent lenders, and provides equal pricing with no volume discounts. Most of the trade groups support keeping Fannie and Freddie in place as the dominant players in the secondary market.

There was one bit of news. All the speakers at Thursday’s hearing indicated they were against a proposal to create multiple GSE-like organizations, which is one of the key features of the Mortgage Bankers Association (MBA) plan.

MBA, the largest mortgage trade group, wants the government to turn the GSEs into private utilities, and open up the system to allow for more companies. MBA believes that such a system is needed to bring more innovation, transparency and competition.

Most of the small trade groups like the utility model concept, where Fannie and Freddie’s prices and business decisions would be tightly controlled. All the speakers were against the idea of multiple GSEs, however, saying it would be too complicated, and unnecessary. 


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