TheMReport

April, 2012

TheMReport — News and strategies for the evolving mortgage marketplace.

Issue link: http://digital.themreport.com/i/59481

Contents of this Issue

Navigation

Page 76 of 82

FEATURE SECONDARY MARKET to wonky specifics for the blueprint—a survival tactic typi- cal of any Attaque au Fer inside the Beltway. It recommended a gradual phase-out of Fannie and Freddie, guarantees to backstop asset-backed securities—a nod to investors—and the creation of new "infrastructure" to totally supplant the GSEs over time. The goals: Retire the role of Atlas for the taxpayer and allow the return of private capital to 01 The Corker Bill S en. Bob Corker (R-Tennessee) introduced the Residential Mortgage Market and Privatization Act, S. 1834, in November last year. The plan is notable in that it proposes doing away with federal guarantees in the to-be-announced (TBA) market and voiding the risk-retention rule. Ratings agency DBRS backs it for investors. THE BIG PICTURE: Trust in the invisible hand of the free market but play a careful one in the high-stakes game of secondary market transformation. WHAT IT PROPOSES: A 10-year process to wind down market share for Fannie and Freddie, along with a gradual reduction of the percentage of mortgage-backed securities each company guarantees and a replacement system for Mortgage Electronic Registration System, Inc. (MERS) WHAT IT REMOVES: Fannie and Freddie (gradually), MERS, federal guarantees for investors in the TBA futures market, and the risk-retention rule, or Qualified Residential Mortgage, under the Dodd-Frank Act. WHAT IT KEEPS: Down payment requirements at 5 percent and full- documentation processes for homeowners in lieu of a risk-retention rule. A PHRASE IT WOULD EMBODY: All good things come with time. a secondary market in which Fannie and Freddie currently back nine out of every 10 mortgages. "What we're trying to do here is to start taking meaningful steps forward that will build the foundation for the secondary market in a world in which we assume we are sort of post-Fannie-and-Freddie-in- conservatorship," he said. Not that everyone sees the same meaning—or takes the same side. 02 The FHFA Plan T he FHFA plan is bold, experts say, because of the agency that spawned it. The federal regulator portrays Fannie and Freddie as ultimately unsustainable and calls for a series of long-term actions. THE BIG PICTURE: Secondary market reform is like balancing on a tightrope at an $11 trillion circus. The performers: Congress, administration officials, and—ideally—both political parties. WHAT IT PROPOSES: New infrastructure to replace Fannie and Freddie, along with new servicing compensation standards, uniform mortgage data programs, and reforms for executive compensation packages. Also: Higher "g-fees" for lenders and greater reliance on mortgage insurance. WHAT IT REMOVES: Federal conservatorship for Fannie Mae and Freddie Mac—gradually. WHAT IT KEEPS: Foreclosure relief, refinance credit thresholds, and some form of securitization that sustains the relationship between homeowners and investors. A PHRASE IT WOULD EMBODY: Slow and steady wins the race. Proposals from lawmakers continue to deluge the national conversation, with many from the left crying foul when it comes to credit availability for low-income families and oth- ers from the right clinging to private-sector hurrahs. DeMarco himself has fallen un- der fire and—maybe like a Beltway version of Moses on Mount Sinai— may not serve long enough to see the fruits of his labor. Pressure to 03 The Garrett Bill E xperts say there's a lot to like about Rep. Scott Garrett's (R-New Jersey) signature legislation, which cleared the House subcommittee he chairs last fall. Of the many out there, Heritage's John calls it "an excellent start." Even DeMarco gave it lip service during a November hearing. THE BIG PICTURE: Show Uncle Sam the door. WHAT IT PROPOSES: New servicing standards and compliance measures under the FHFA, several categories of new mortgage products, uniform underwriting standards, and the establishment of an arbitration process and third party to monitor investor-issuer disputes. WHAT IT REMOVES: Fannie and Freddie (absent any timeline), federal guarantees for mortgage-backed securities, and the risk- retention rule under Dodd-Frank. WHAT IT KEEPS: The FHFA, albeit with a bigger role in housing finance, and the Federal Housing Administration (FHA), with less market share. A PHRASE IT WOULD EMBODY: No time like the present. sack the acting director continues to grow, with Democratic House members criticizing his lukewarm response to refinance measures and principal reductions. In signs that a general election is well under way, MoveOn.org—the progressive group famous for lam- pooning Gen. David Petraeus for the Iraq surge strategy in a New York Times ad in 2007—followed suit by launching a "Dump DeMarco" campaign in March. 76 | THE M REPORT SECONDARY MARKET ANALYTICS SERVICING ORIGINATION

Articles in this issue

Links on this page

Archives of this issue

view archives of TheMReport - April, 2012