Housing Groups, Small Bankers Wary Of Mortgage Reforms

Banks, affordability advocates question measure to dismantle Fannie, Freddie

The Record ( — Saturday, March 15, 2014

The Record

A group of affordable housing advocates from New Jersey gathered Thursday in Washington to express concerns to lawmakers about a Senate bill that would do away with government-sponsored, privately owned mortgage giants Fannie Mae and Freddie Mac, which together own or insure 60 percent of U.S. mortgages.

On Friday, Paul Merski, a government relations expert at the Washington-based Independent Community Bankers of America, updated a gathering of New Jersey bankers in Woodbridge on the status of that bill, which community bankers fear would cater to Wall Street, cutting them out of the mortgage-lending business.

Although a bipartisan agreement on how to shift mortgage market risks and rewards to the private sector from taxpayers has been reached in the Senate Banking Committee, the proposed reforms remain a work in progress.

House Republicans have different ideas on how to dismantle Fannie and Freddie, which have been in government conservatorship since 2008, and industry observers doubt any change will be enacted this year.

So in the meantime, lenders and affordable housing advocates in New Jersey and around the country are fighting to have their views taken into account.

"We hope [reform legislation] will provide a meaningful level of support for affordable housing goals, and provide for access to mortgage credit to the full spectrum of creditworthy borrowers," said Beverly Brown Ruggia, a community reinvestment organizer at New Jersey Citizen Action, who was in Washington on Thursday to lobby for preserving affordable housing incentives.

The agreement announced Tuesday by Senate Banking Committee Chairman Tim Johnson, D-S.D., and ranking member Mike Crapo, R-Idaho, would create a new agency to replace Fannie and Freddie, but it does not preserve prescribed goals for lending to low- and moderate-income borrowers and in low- and moderate-income neighborhoods.

Instead, it would require mortgage companies to pay fees to two housing-related funds — the National Housing Trust Fund, administered by the Department of Housing and Urban Development, and the Capital Magnet Fund, which provides funding for community development banks and is administered by the Treasury.

The Johnson-Crapo measure would shift Fannie's and Freddie's role of providing liquidity to the U.S. mortgage market in part to a proposed new agency modeled after the Federal Deposit Insurance Corp., to be called the Federal Mortgage Insurance Corp., or FMIC.

FMIC-member mortgage companies, which would be required to hold capital reserves of 10 percent of the loans they sell in the secondary market, would share in the ownership of a standardized loan securitization platform.

The FMIC's responsibilities would include guaranteeing the mortgage-backed bonds created through securitization so they could be sold to investors.

The private mortgage lenders would be assessed fees to support the insurance fund, similar to the way banks pay fees to the FDIC to insure their deposits.

The Independent Community Bankers of America has said it wants government guarantee fees that are "fair and equal for all market participants, regardless of volume of loans guaranteed."

"Fannie Mae and Freddie Mac work perfectly fine for community banks," Merski said Friday in an interview. "The question is, will community banks still have the same treatment and access to the secondary market."

The proposal would keep in place high loan limits for government-guaranteed mortgages in pricey markets, such as northern New Jersey.

Fannie's and Freddie's loan limits were raised in the wake of the financial crisis to make more credit available to higher-end homeowners.

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