by Sarah Jawaid, National Housing Conference
The House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises held a hearing Dec. 7 on Chairman Garrett’s proposed Private Mortgage Market Investment Act. This was follow-up to an earlier hearing held in October where components of Garrett’s legislation were introduced.
The legislation aims for standardization, certainty, and transparency in private securitizations of mortgages—a laudable goal and one where government regulation creates real value. The legislation raises real concerns, however, by proposing that private securitization entirely replace a government guarantee presence. A government guarantee—explicit, limited, and paid for—provides liquidity in downturns and broad access to mortgage credit, which are essential to creating affordable housing options across the country.
Those who testified included: Mr. Chris Katopis, executive director of the Association of Mortgage Investors; Dr. Mark Calabria, Cato Institute's director of financial regulation studies; Mr. Mark Fleming, chief economist at CoreLogic ; David H. Stevens, president and CEO of Mortgage Bankers Association; Tom Salomone of Real Estate II, Inc. on behalf of the National Association of Realtors® and Dr. William Poole, distinguished scholar in residence at the University of Delaware.
The panelists had differing perspectives on the role of government involvement in credit markets. Poole thought the government should lessen its presence by phasing out the GSEs and decreasing conforming loan limits. He also thought the government’s role should focus on regulation through the Federal Reserve. MBA President Stevens expressed that the “importance of housing, whether owner-occupied or rental, to the nation’s economic and social fabric warrants a federal government role in promoting liquidity and stability in the core mortgage market. “
The focus during the Q&A seemed to be on qualified residential mortgages (see NHC's comment letter on QRM from this summer). Members of Congress asked the panelists to help them understand the implications of requiring sponsors of asset-backed securities to retain at least five percent of the credit risk of the assets and 20% or 10% down payment. Several panelists shared their concerns over the harm this would cause on creditworthy borrowers who would not have access to credit. Legislators also wanted to know how to attract more private label mortgage-backed securities. Fleming wrote in testimony that to encourage private investment, “uniformity of underwriting standards and securitized assets, standardization of securitization processes, and granular, loan-level understanding of the credit risks associated with whole loan portfolios and residential mortgage-backed securitizations” are needed. Listen to the testimony on the House Financial Services website.