April, 2012

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THE LATEST SECONDARY MARKET NAHB Proposes Plans for Restructuring Secondary Market Industry group debuts its ideas for overhauling the country's housing structure. A prominent housing trade group joined a growing roster of policymakers by out- lining ways to take the GSEs off federal conservatorship, reintro- duce private mortgage-backed securities, and charge existing government entities with stew- ardship of the new system. The National Association of Home Builders (NAHB) lately released a white paper that calls on lawmakers to slowly transition a system dominated by Fannie Mae and Freddie Mac to one that shares and balances responsibility. What would the new second- ary market look like? Think a patchwork of securitization pro- cesses, regulatory oversight, and reform measures, all shared by a handful of state and federal agen- cies, some existing, some new. "Our plan seeks to overhaul the housing finance system to ensure that housing credit is available and affordable in the future and is delivered through a competitive, efficient, sound, safe, and stable system," NAHB chairman Barry Rutenberg said in a statement. Under the NAHB proposal, lawmakers would rekindle a market for private mortgage- backed securities by guaranteeing securities instead of mortgages, setting up a phase-out period for Fannie Mae and Freddie Mac, and charging various entities, state and federal, with responsi- bility for the system. A private mechanism simi- lar to the FDIC's self-funding Deposit Insurance Fund would backstop conventional mortgage- backed securities, with a policy in place that allows the federal government to step in only in catastrophic situations. "The intent is for the govern- ment to be in a secondary posi- tion and to be the insurer of last resort in order to reduce the risk to taxpayers," Rutenberg added. The 12 Federal Home Loan Banks could ideally serve as Housing Finance Entities (HFEs) able to buy and pool mortgage loans from originators into securities overseen by a new federal board, not un- like the one that directs the FDIC. State housing finance agencies would need to step up and serve alongside the HFEs as guarantors of liquidity in the private market. If taken as is, the proposal would leave intact existing agencies—the Department of Veterans Affairs, Federal Housing Administration, Ginnie Mae, and HUD, among others—and preserve the role of longstanding products like the 30-year fixed-rate mortgage. The NAHB also threw its weight behind more "prudent" underwrit- ing standards, securities oversight, and appraisal reform, going so far as to touch the sticky issue of inves- tor ratings by establishing a new investor-oriented ratings agency. The proposal comes as a bevy of others arrive from lawmakers and policymakers to replace the overburdened GSEs with a new system of securitization measures. Rep. Scott Garrett (R-New Jersey) and Sen. Bob Corker (R-Tennessee) introduced legisla- tion in Congress last year to siphon Fannie and Freddie out of the secondary market. The Federal Housing Finance Agency (FHFA) notably released a proposal recently to overhaul the secondary market, also by transitioning it off of the GSEs and setting up new securitization programs over several years. THE M REPORT | 71 ORIGINATION SERVICING ANALYTICS SECONDARY MARKET

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