HOUSINGNEWS REPORT
MY TAKE
The regulator should have the authority to set specific capital levels, both risk-based and overall leverage limits/ratios. These capital requirements for the Guarantors, including the types of instruments that count as capital, should be consistent with the capital requirements for single- family and multifamily mortgages set for banks and other competing investors in mortgages such as insurance companies, in order to ensure that similar risks require similar capital, regardless of where those risks are held. The capital base for the requirement should primarily be comprised of Tier 1 capital, i.e., common and preferred equity, but should also provide capital relief to the Guarantors for distributing rather than retaining credit risk, so long as this is done on an economically sensible, equity equivalent basis.
MBA’s Task Force considered many potential models in developing its recommendations for a new secondary market system. The resulting proposal is intended to preserve what works in the current system — namely it supports a highly competitive primary mortgage market comprised of lenders of a variety of sizes and business models. All of these primary market activities take place on one side of the bright line, the dividing line between primary and secondary market activities. From a lender’s perspective, the process of selling conventional conforming loans should be similar to the current process. Lenders could sell through a cash window or pool loans into securities. The Guarantors, including rechartered
the credit risk on these pools, and would be the issuers of the mortgage backed securities (MBS). Single-family securitizations would utilize the Common Securitization Platform (CSP), at which time an explicit guarantee is placed on the MBS for the benefit of investors, ensuring timely payment of principal and interest. A portion of the guarantee fee would be used by the Guarantors to cover a premium to pay for the government backstop, and these premiums would build up a Mortgage Insurance Fund (MIF) over time. Investors will trade single-family MBS through a market similar to today. Each of the Guarantors would issue into a single security. Most likely, the single security would be structured the same as the forthcoming Uniform MBS (UMBS), but will also have an explicit guarantee.
Fannie Mae and Freddie Mac and any new entrants, would manage
MBA’s Task Force considered many potential models in developing its recommendations for a new secondary market system. The resulting proposal is intended to preserve what works in the current system -- namely it supports a highly competitive primary mortgage market
comprised of lenders of a variety of sizes and business models.”
ATTOM Data Solutions • P11
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