A proposal by U.S. mortgage bankers calls for the creation of mortgage-backed securities issued through a hybrid model that utilizes the existing government sponsored enterprises as a foundation and incorporates features from securities issued by the Government National Mortgage Association.
In October 2008, the Mortgage Bankers Association created the Council on Ensuring Mortgage Liquidity. The group sought a “fundamental rethinking” of the government’s role in the secondary mortgage market in light of the housing crisis.
Today, the council released Recommendations for the Future Government Role in the Core Secondary Mortgage Market. The paper was prepared by the council’s 23 members and outlines a proposed framework for a refined government role in the secondary market. It follows Key Considerations for the Future of the Secondary Mortgage Market and the Government Sponsored Enterprises released in January.
The trade group is calling for the creation of a new line of mortgage-backed securities with loan-level guarantees from a credit guarantor entity that is government-chartered and privately owned. The proposed MBS would include an explicit government guarantee tied to the credit risk of the securities — similar to with Ginnie Mae securities.
The infrastructure of Fannie Mae and Freddie Mac might serve as the foundation for the proposed credit guarantors. The proposed model would capitalize on the two secondary lenders’ existing technology, staff and relationships.
Only core loan products that are needed to ensure a liquid, functioning secondary mortgage market during times of extreme stress would be eligible for issuance through the proposed entities, MBA said. Any new proposed loan programs would require regulator approval.
“While this is not the only viable framework, we believe the recommendations represent a workable approach, balancing the government’s ability to ensure liquidity, with the need to protect taxpayers from the credit and interest rate risk inherent in mortgage finance,” MBA President and Chief Executive Officer John Courson said in the statement.
