Broeksmit Testifies on Housing Finance Reform
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WASHINGTON, D.C. (December 21, 2018) - Robert D. Broeksmit, CMB, President and CEO of the Mortgage Bankers Association (MBA) testified today before the House Financial Services Committee at a hearing titled, "A Legislative Proposal to Provide for a Sustainable Housing Finance System: The Bipartisan Housing Finance Reform Act of 2018."
Following is a copy of Mr. Broeksmit's oral testimony before the committee, as prepared for delivery:
"Chairman Hensarling, Ranking Member Waters, and members of the committee, thank you for the opportunity to testify on behalf of the Mortgage Bankers Association.
"My over 30 years of experience in real estate finance gives me a unique appreciation for the complexity of the housing finance system, as well as the importance of ensuring that it operates in accordance with a well-calibrated regulatory framework.
"On behalf of MBA, I commend Chairman Hensarling, as well as Representatives Delaney and Himes and their staffs, for developing and releasing the proposal being discussed today. The housing finance system requires structural reforms that will ensure a stable, liquid secondary market. Comprehensive legislation is essential for such reforms, and this bipartisan legislation represents a strong step forward in advancing this effort.
"The 2008 financial crisis exposed fundamental problems in the GSEs' business models, as well as weaknesses in the regulatory framework in place at the time. Ten years later, we have still not determined how or if the GSEs will be reformed. Only by enacting comprehensive legislative reform can we realize the full benefits of a diverse, competitive primary market and a vibrant, liquid secondary market. Reform should proceed without delay.
"This proposal focuses on several principles including liquidity across mortgage markets, borrower access to credit, lender access to the secondary market, taxpayer protection, consumer choice, and a smooth transition to an end state. Many of these principles align with what MBA has long supported. "In particular, the draft recognizes that any reforms must meet the needs of the broad array of participants in the housing finance market, including borrowers, lenders, investors, and taxpayers. Competition is also woven throughout the discussion draft. MBA believes that robust competition in the secondary market promotes a highly competitive primary market, which in turn provides borrowers with greater choice at affordable prices. Additionally, the draft includes numerous provisions that prohibit discrimination based on lender size or business model, which we agree is of paramount importance.
"MBA applauds the inclusion of an explicit, federal government guaranty on eligible Mortgage Backed Securities in the single family and multifamily markets. In addition, the development of an insurance fund-the Private Capital Reserves-is an appropriate step to ensure the government is compensated for the credit risk that it holds, as well as to create a buffer to absorb losses ahead of taxpayers in the event that a Private Credit Enhancer becomes insolvent.
"The restriction on vertical integration preventing Ginnie Mae issuers from also operating as Private Credit Enhancers should protect against market distortions that favor larger institutions, though this restriction could be enhanced by expanding it to include a clearer prohibition on any entity simultaneously undertaking both primary and secondary market activities.
"There is an important distinction in the structure of the conventional secondary market, which is served by the Enterprises and operates under a guarantor model, relative to the structure of the government or Ginnie Mae secondary market, which operates under an issuer model. Though there are merits to both structures, MBA continues to believe that a guarantor model is far more appropriate for the conventional market.
"One of the greatest challenges to enacting comprehensive reform has been conflicting views on how to best ensure widespread availability of affordable housing, particularly to low- to moderate-income households. Affordability in the current housing market is hampered by low inventory and home prices that are rising faster than wages in many areas of the country, among other issues.
"While this draft does not currently contain specific legislative text, it does include principles regarding the provision of affordable housing. They focus on targeting and delivering aid to those most in need of assistance. MBA supports the need for strong affordable housing provisions and recommends the authors build out and strengthen this section.
"As the Enterprises continue into their second decade of government conservatorship, it is more critical than ever that policymakers tackle the remaining work of housing finance reform. Access to affordable, sustainable housing is a necessity for all Americans, and as such, it requires a system of financing that is robust in all parts of the country, through all parts of the credit cycle. Legislative reforms of the Enterprises offer the best path to reach this desired end state.
"Again, thank you Chairman Hensarling, Ranking Member Waters and Representatives Delaney and Himes for your thoughtful contribution to this effort and for the opportunity to testify. I look forward to your questions."
Mr. Broeksmit's full written testimony is available here.