by Ethan Handelman, National Housing Conference
Today, Representative Scott Garrett, R-N.J., chair of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, introduced the Private Mortgage Market Investment Act, which aims to encourage private capital into the residential mortgage secondary market. Its stated goals (see summary) are laudable:
- Standardization, both in the underwriting of mortgage loans and in the securitizations of those loans.
- Certainty, around investor rights, servicer responsibilities, and the parameters for future mortgage modifications.
- Transparency, particularly in disclosure of loan-level data, disseminating pricing information, and ensuring that investors have time to review securitizations in detail.
Rep. Garrett introduced the bill as a replacement for the presence of a government guarantee and reiterated ongoing criticism of Fannie Mae and Freddie Mac. Interestingly, many elements of the proposal are potentially constructive, regardless of whether there is a strong federal role in mortgage markets. One example is the steps to enable the To Be Announced (TBA) market, which is a key source of efficiency and liquidity for mortgages. More transparency and standardization there would benefit all participants, as well as the federal government as guarantor.
Many aspects of the bill deserve further attention. For instance, standardizing mortgages into risk-based classes may make risks clearer for investors, but we should not as a an unintended consequence drive capital disproportionately to the lowest risk loans, in effect skimming the cream of the mortgage market. Similarly, if we attempt to create certainty for investors and servicers, we must also provides effective means to protect borrowers, particularly with the example of the foreclosure crisis fresh in our minds. Examination of these and other issues raised by the bill will help move us closer to a mortgage finance system that provides safe, decent, and affordable housing options for all in America.