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Opinion: MBA’s reform plan works

By James S. MacLeod

At long last the debate over housing-finance reform has begun in earnest, and it appears that industry participants are trying to make this a debate over what size lenders win or lose in the process. While I guess this is a parlor game of the day in Washington, picking winners and losers, I might suggest an alternative: Doing the right thing.

jamesmacleodIt has now been almost nine years since the Federal Housing Finance Agency placed Fannie Mae and Freddie Mac into conservatorship. The funds that were advanced by the U.S. Treasury have been repaid, plus a profit. We have witnessed the failing of the past charters of the government-sponsored enterprises, and we now have an opportunity to take what was learned and construct a new system built for the long haul.

Advocates of the “recapitalize and reform” alternative, which has been floated by hedge funds, would work to preserve a system that many smaller institutions have found comfortable. Let me suggest that this time and opportunity shouldn’t be wasted in order to make lenders comfortable with the status quo. Some lessons we learned from the past need not be repeated, such as the dangers of weak regulation, over-zealous lobbying activities and a totally unlevel playing field as large lenders were rewarded with lower prices in exchange for larger volumes.

Certain industry trade organizations are taking aim at a comprehensive plan being floated by the Mortgage Bankers Association (MBA) as unfair to small mortgage bankers and community banks. As a community banker and active mortgage lender, I just don’t get it. 

Extreme care was taken by the board of the MBA to make sure that neither Congress nor the new guarantors would be choosing winners and losers. Multiple, privately owned “utilities” — regulated as such — would assure broad access to liquidity for all sizes of lenders at guarantee fees that reflect loan-level risks, not the size or clout of the lender. In addition, the MBA plan protects against vertical integration by restricting the ability of large lending institutions from obtaining a controlling interest in any guarantor.

To my way of thinking, by utilizing a broad array of credit-enhancing mechanisms, the MBA proposal actually assures a level playing field for all market participants. While large lenders might choose to use their ample balance sheets, smaller lenders can use mortgage insurers and other credit enhancers at a reasonable price. The key in my mind is to make certain that a competitive market results in fairly priced mortgages for homeowners without undue risk to the taxpayer.

The MBA proposal also provides for highly regulated industry utilities where several guarantors — not just two — could compete for business. We have an opportunity to not only fix a structural problem but create an environment where mortgage capital flows freely, credit standards are maintained and the power of the past duopoly is put behind us.

It is critical that both large and small lenders be able to access the capital markets efficiently so as to provide home financing to all segments and geographies. The MBA framework provides an effective way to leverage the current Fannie/Freddie infrastructure and lay a foundation for new participants in the future.

James S. MacLeod is chairman and CEO of CoastalSouth Bancshares Inc. in Hilton Head, South Carolina. He also is a member of the Mortgage Bankers Association and can be reached at The viewpoints expressed by authors do not necessarily reflect the opinions of Scotsman Guide Media.


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