WASHINGTON, DC - Michael D. Berman, CMB, Chairman of the Mortgage Bankers Association, testified today before the Senate Banking Committee at hearing titled, "Public Proposals for the Housing Finance System." Below is Mr. Berman's oral statement before the committee, as prepared for delivery.
Source: Mortgage Bankers Association
"Thank you, Chairman Johnson and Senator Shelby, for the opportunity to testify today. I have been in the real estate finance industry for over 25 years and my company has been active in the commercial mortgage-backed securities arena as an investor, lender, issuer of securities, servicer and special servicer. We've also been an active Fannie Mae, Freddie Mac, and FHA Multifamily lender and servicer.
"The current housing crisis has prompted a fundamental rethinking of the part played by the government in the housing finance system. Certainty of the federal role in the housing market is necessary to encourage private capital to return.
"Several factors contribute to the current uncertainty and lack of private capital in the housing market. Ongoing uncertainty on risk retention rules, GSE reform, and the future of the conforming loan limits raises questions about the consistency of national housing policy. While the administration's recently-released white paper on reforming the housing finance system was an important first step, much work lies ahead and we must act in a deliberate, coordinated and comprehensive fashion.
"MBA firmly believes that a carefully crafted government role can serve to maintain the nascent housing market recovery and preserve the availability of affordable 30-year fixed rate mortgages. To this end, in 2008, MBA convened the Council on Ensuring Mortgage Liquidity, which I chair. This 23-member council was made up of industry practitioners from the single-family, multifamily and commercial sectors of the real estate finance industry. Its mission was to look beyond current market conditions, to what a properly functioning secondary mortgage market should look like. In September of 2009, MBA first articulated a plan, outlined in my written testimony, which is based on three key principles:
"First, secondary mortgage market transactions should be funded with private capital. Private capital should take two forms: capital that takes on credit risk on mortgages, and capital from bond investors that take on interest rate risk.
"Second, to promote uninterrupted market liquidity for the core mortgage market, the government should provide an explicit, but limited, credit guarantee on a class of mortgage-backed securities backed by "core", well-underwritten single-family and multifamily mortgage products. This guarantee should not be free, but should be financed with risk-based fees to be deposited into an FDIC-type insurance fund.
"Third, taxpayers and the system should be protected through limits on the mortgage products covered, permissible activities, portfolio size and purpose, coupled with strong risk-based capital requirements, and risk-based payments into a federal insurance fund.
"This plan has largely been mirrored in option three of the administration's white paper, as well as in plans proposed by other industry practitioners and trade groups.
"Let me be clear, MBA's plan is not an extension of the current status quo. It focuses on core products and enacts five significant lines of defense to protect taxpayers. We believe that once the transition is complete, the government footprint in the real estate market would be much smaller than today.
"The framework we have proposed is not intended to be the entire market. It's meant to focus on a narrowly-defined set of core mortgage products that are essential to have available through all market conditions. Our proposal recognizes the need for a wider array of products through a reemergence of the private market, including private label securities and covered bonds.
"We must also ensure that the transition from the current system to a new model is as seamless as possible. As taxpayers, we have a 150 billion dollar investment that we need to protect. Measures such as focusing the GSEs on a narrow range of mortgages and winding down their portfolios can be undertaken now. While we continue to rely on the GSEs as we identify a clear path forward, we must work to remove uncertainty and ensure that the GSEs' resources are of service now and through the transition. The challenge of retaining and recruiting talented professionals cannot be understated. Without their talent, our housing finance system would be further at risk.
"Mr. Chairman, MBA's recommendations combine an acknowledgement that only a government guarantee can attract the depth and breadth of capital necessary to support the market during times of economic stress, with a reliance on private capital, insistence on multiple layers of protections for taxpayers and a focus on ensuring a competitive, efficient secondary mortgage market.
"These proposals were developed by industry practitioners who have been working on these issues for their entire careers and represent a practical approach to ensuring liquidity in the mortgage market. As you and other policymakers are aware, 16 diverse organizations coalesced this week around a set of similar principles calling for a continued and predictable government role in the housing finance system to promote investor confidence and to ensure liquidity and stability. We welcome your thoughts and comments on our ideas."
The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 280,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation's residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,200 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field.