Risky Business

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the latest Or ig i nat ion SERVICING Analysts Argue for Less Government in Housing Reform s e c on da r y m a r k e t a na ly t ic s Se r v ic i ng Three industry experts have varying ideas of how to move the industry forward, but all three agree the path ahead includes more private capital and less federal interference. A trio of industry analysts gave testimony before a Senate committee on housing finance reform recently. While each expressed support for more private capital and less government involvement, the proposed degrees of government support varied. "It's been more than four years since Fannie Mae and Freddie Mac were placed under government conservatorship, yet there is still no clear path forward," said Mel Martinez, co-chair of the Bipartisan Policy Center's Housing Commission, in his written testimony. 50 | The M Report To move forward, Martinez recommended more private participation to protect taxpayers. "The dominant position of the government in the market is unsustainable," he said. "Yes, private capital is flowing through the system, but it absorbs very little of the system's credit risk." Currently, about 90 percent of single-family mortgages have some form of government backing. Martinez recommended the elimination of the GSEs over a period of about five to 10 years and the creation of a limited government guarantee called the "Public Guarantor." The entity would have a similar model to that of Ginnie Mae and ensure timely payments of principal and interest on qualified mortgage-backed securities. The public guarantor would be the fourth in line before taking a loss, with borrowers, private credit enhancers, corporate resources of the securities' issuers, and mortgage servicers coming before the guarantor. He also stressed that the model of the GSEs should not be reproduced. Peter Wallison, Arthur F. Burns Fellow in Financial Policy Studies at the American Enterprise Institute, argued for a private system based on prime mortgages with no direct financial support from the government. "Our proposal is based on the simple idea that the housing finance market will operate steadily and stably if a high preponderance of the mortgages it processes through securitization are prime loans," he said. Although the proposal permits only prime mortgages into the securitization system, subprime mortgages could still be made, but they would be held on private balance sheets and not securitized, he explained. Janneke Ratcliffe senior fellow at the Center for American Progress, expressed support for 30-year, fixed-rate mortgages as the "gold standard for a safe and sustainable mortgage market," but said without government support, the product is likely to be of the past. Ratcliffe also stressed for more than just access to safe, affordable mortgage financing, but for a reformed multifamily finance system to meet the demand for affordable rental as well. Quicken Acquires Last of Ally's Servicing Rights The online mortgage company now has a larger portfolio that will most likely be refinanced. A lly Bank has reached an agreement with Quicken Loans to sell the last of its remaining mortgage servicing rights (MSRs) portfolio, both companies announced. The portfolio comprises mortgage loans "that are largely expected to be refinanced postclosing, based on interest rates that are above current market levels, and have an unpaid principal balance (UPB) of approximately $34 billion as of January 31, 2013," according to a release from Ally. The purchase price is estimated to be approximately $280 million. The transaction is expected to close in the second quarter and is subject to approval by Fannie Mae and Freddie Mac. Earlier in the month, Ally announced another agreement to sell approximately $90 billion UPB of MSR to Ocwen. The two agreements close the book on the bulk of Ally's mortgage activities. Following the bankruptcy of Residential Capital in 2012, the bank announced it was exploring options to exit the mortgage business and has engaged with companies to sell its operations and servicing rights. "This agreement marks a key milestone for Ally and, upon successful completion of the MSR transactions, Ally Bank will have exited all the nonstrategic mortgage activities," said Barbara Yastine, present and CEO of Ally Bank. "Going forward, the bank's full focus and resources will be centered on its leading direct banking franchise and advancing its customer-centric deposit activities,

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