CMLA calls for Secondary Mortgage Market Reforms to include Fannie & Freddie

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Community Mortgage Lenders of America

Jun 04, 2012, 12:47 ET

WASHINGTON, June 4, 2012 /PRNewswire-USNewswire/ -- The Community Mortgage Lenders of America (CMLA) today released its policy White Paper on the future of the U.S. mortgage secondary markets (Fannie Mae and Freddie Mac). The CMLA urges a smaller Fannie and Freddie that normalize credit risk pricing, pay an insurance premium to remove the hidden subsidy, and continue to reduce their retained portfolios as market pricing allows, with the goal of providing a window for other entities to serve the market over the next several years.

The CMLA endorses a future whereby Fannie and Freddie shrink to serve 30-35 percent of the overall secondary mortgage market, and are barred from securitizing or investing in anything but plain "vanilla" mortgages.

But, the CMLA is the first trade group to call for Fannie Mae and Freddie Mac to remain intact. The CMLA believes that overall uncertainty in the mortgage market, including origination policy with the Qualified Mortgage rule, Qualified Residential Mortgage rule, and other regulations from numerous banking agencies and the Consumer Finance Protection Bureau, and in mortgage servicing with numerous ongoing regulatory and legal actions, means that it's time to commit to reforming and shrinking--but retaining—Fannie Mae and Freddie Mac. In addition to reducing uncertainty, the CMLA calls for keeping the agencies intact to ensure that mortgage markets do not become further concentrated and destabilized.

"Our plan is forward-looking and will result in distinct changes in the secondary market. However, we call on Washington to move expeditiously and to avoid drastic, politically-driven changes that will harm small lenders and the small communities in which they serve," said Mark McDougald, Chairman of the CMLA.

The CMLA remains concerned that wholesale uncertainty in mortgage policies has contributed to an ongoing credit crunch for qualified borrowers, depressing housing prices and delaying balance sheet recovery for both lenders and the government.

The CMLA confirms that Fannie and Freddie help to stabilize and protect the franchises of small lenders across the country. As FHFA Acting Director Edward J. DeMarco said recently, "mortgage markets are more concentrated today than they were at the beginning of the current recession".

The CMLA believes that the American taxpayer deserves full repayment. With correct credit risk pricing, a clear pathway now exists for full re-payment. Current commentary that Fannie and Freddie can never repay the American taxpayer contradicts existing capital markets analysis and it serves to stall an effective recovery of mortgage and housing markets. "The housing bubble has decimated families, communities and economic growth. But if we don't move soon to create certainty and clarity, Washington by its own actions will prolong this housing recession and cause more damage," McDougald said.

The Community Mortgage Lenders of America (CMLA) was founded out of concern that emerging federal policies threaten to severely diminish community based lending, while increasing concentration among the nation's largest financial institutions, to the detriment of competition and consumers. CMLA members include community banks and non-banks who survived the mortgage crisis because of close attention to prudent and traditional underwriting standards with a strong commitment to sound lending.

SOURCE Community Mortgage Lenders of America