Here is latest David Stevens’s argument on MBA reform plan. I do not think it makes much sense to me.
my comments:
- GSEs does not need recap since Fed backs them, then in the same token, banks does not need capital by themselves since Fed also backs them?
- The legislation will be done surely and relatively easily since it will be bi-partisan. Look at the healthcare, tax reform and infrastructure plans, so we think congress can make it work easily given so much opposition in public and the Fanniegate scandal? why re-invent the wheel but without much benefits, and with so much risks? how long it will take?
- Monopoly and bi-monopoly are not good, can we just reform the regulation by making the market competitive, instead of creating a couple of more monsters that will someday crash market again?
- how about the 79.9% warrants that Fed holds, how can Fed and tax payers get back bils and bils of dollars from this holding if GES is wound down?
The following is Stevens’s argument
MBA’s reform plan protects small lenders
The Senate banking committee resumed its hearings on Thursday on reform of the government-sponsored enterprises Fannie Mae and Freddie Mac. Ahead of the latest hearing, David Stevens, president and chief executive officer of the Mortgage Bankers Association (MBA) spoke with Scotsman Guide News about GSE reform. Stevens testified on June 29 before the Senate committee in support of MBA’s plan to re-charter the GSEs as strongly regulated private utilities, and create a system with potentially several similar companies competing for business in the secondary market.
Why does MBA advocate for multiple GSE entities?
Well, one thing that we have learned with the duopoly of Fannie Mae and Freddie Mac is that it has created an environment where they almost behave like a monopoly. In many instances, they almost act like a single entity, and they allocate market share to each other as though it was almost planned. We want real competition in a future state. Compare it to the mortgage insurance business. There are seven MI companies out there all competing for the lenders’ business, and that forces them to be much more transparent in pricing, more creative in customer service tools, contract underwriting, technological and operational capabilities, reps and warrants and more. When you only have a two-company duopoly, it is very non-transparent. So that is why most lenders in this county have no idea what is happening in the credit-risk transfer structures. They are very complex and oftentimes they are only executed with a single lender, typically a large one, and it creates a great amount of risk for putting smaller lenders in a less competitive environment. Just like when you have a lot of people competing for any of your business, you end up creating the best price transparency and usually the lowest price that is allowed in the market. There is a real threat that, if they don’t do right by you, you can go to another company. Today, it is much more difficult for that to happen.
Why would smaller lenders have nothing to fear from the MBA plan?
Quite frankly, I think small lenders should fear not doing legislative reform. The greatest fear that small lenders should have is to allow this duopoly to return to its original state. Keep in mind, and this is fact, between 1998 and 2010, the market share of the 10 largest single-family originators in this country rose from 40 percent to almost 80 percent. That was done because the GSEs, when they needed market share, it was a whole lot easier to go cut a deal with one big lender than to drop G-fees for a thousand lenders. What we saw pre-conservatorship was what were known as alliance deals at the time. They would cut a deal with a Countrywide or Washington Mutual or whoever it would be who was big at the time for all their business, and they would give them a guarantee fee that was, at times, 20 basis points lower than what they were giving their smaller lenders. I personally know this because in 2011 when I first came to MBA, I brought three small independent mortgage bankers to meet with Ed DeMarco [former acting director, Federal Housing Finance Agency], followed by several letters both to the regulator and to the Hill, calling for level guarantee fees. Even in 2011, they were not level. Bigger institutions were getting better deals. It wasn’t just in price, but in credit terms. So, you release these guys back to their original state, the only thing that is protecting you is the hope that the regulator is going to do a good job. Because, unless you lock in the level playing field legislatively, we are going right back to the way things were for the couple decades prior to the failing of these two companies.
If you read our plan, it starts in great length with an overview of why small-lender access is preserved. It starts with public, transparent pricing, with no special deals for any lender, large, small, it all has to be evenly priced, just like you get in a Ginnie Mae program and with the FHA program. That is not the way it has been in the past — no special credit deals for anybody, no deals for market share. It retains all of the execution options, cash window, securitization, leaving lenders large and small the ability to transact with a future guarantor any way they want, but it locks it in by legislation, not by the whim of the regulator.
Why is MBA against allowing the GSEs to retain some of their earnings and build up a small buffer to avoid draws on the Treasury line?
Because it is a diversion. They don’t need a buffer. They have got $240 billion in a line of credit, and there is absolutely no reason. In my view, people who are focusing [on this] are being prodded by the hedge funds, who just want to delay this thing in the hopes that they can recap and release, and make a big profit on the stock at the expense of what will really be small lenders. I, quite frankly, think they duped these unsophisticated and less effective organizations to buy into these lies. I don’t know why people are worried about capital. Allow them to retain a couple of billion dollars on top of $240 billion that already sits there for them? It is an absolute ridiculous sideshow that diverts attention on our need to get this done, beat the clock, so we don’t end up with perhaps a much more conservative regulator, who views the role of government as too large and who won’t necessarily protect the level playing field that we have today. The job at hand is keep pressure on Congress to do legislative reform, create more competition, level the playing field, make it permanent by legislation, and stop falling into false narratives that are being promoted by profit seekers and speculators who bought the shares and hope to make a windfall, which will, quite frankly, come at the expense of lenders and consumers.
Given the divisive political environment, what are the chances of anything getting out of Congress?
Look, the easy bet is to say that Congress can’t get anything done. If you ever come to my office, on my wall, there is a bill that is framed with the President’s pen. It is a piece of legislation that I promoted when I ran FHA [Federal Housing Agency], and it went through Congress at a very difficult time when the Tea Party had come in. There were only four no votes on it. The White House was so excited about it, they gave me a red-lined copy of the bill framed with the President’s pen. I am staring at it right now. You can get stuff done. The interesting thing about GSE reform is that it is not partisan. Healthcare, wiping out Obamacare, it hit to the core values of the respective extremes of both parties, one that will defend it to the end of the earth and the other that wants to tear it apart. That became a very partisan divide. To some degree, I think that tax reform could strike into that, or trying to destroy Dodd-Frank. These are things that come with predisposed, partisan divisiveness that makes it very difficult. But Sen. Crapo [Sen. Mike Crapo, R-Idaho, chair of the senate banking committee], and Sen. Brown [Sherrod Brown, D-Ohio, ranking member of the committee] were both very clear that GSE reform is not partisan. It is technical and it is complex in terms of finance. But, to that end, they both agree that we need to move forward. Even [Sen. Elizabeth Warren, D-Massachusetts] came up to me after the Senate hearing that I testified at a couple of weeks ago, and made it very clear that she is opposed to the duopoly, and wants to do GSE reform. This is one where we have Sens. [Bob Corker, R-Tennessee and Mark Warner, D-Virginia] working together, Democrats and Republicans, where we have Crapo and Johnson [former Sen. Tim Johnson, D-South Dakota], Crapo and Brown, different parties holding joint hearings, joint listening sessions and the White House.
I had a meeting with a very high-level member of the administration a couple of days ago on this subject. He made very clear that he thinks we are going to get it done. It takes commitment in a bipartisan fashion. It takes the White House to commit that they want to get it done.
Do you see any common ground emerging in the industry and among the parties?
Yeah, that is a great question. I am a weird dude, man. I grew up in mortgage banking as a loan rep and ended up running a large regulator as the FHA commissioner, and now running the Mortgage Bankers Association. I am loan rep who somehow got wrapped up into politics. I spend all my life, every day, in politics. I am in the White House frequently. I am in the Treasury Department and I am up on the Hill with members of Congress. As you know, we had one hearing on GSE reform so far, the introductory hearing. They only had three witnesses. It was me, a consumer advocate, Mike Calhoun [president, Center for Responsible Lending] and Ed DeMarco, and that is where they started. I think [the Senate Banking Committee went that] route because they recognize that our plan, the MBA plan, actually represents the entire waterfall of lending in America.
We had multifamily lenders on our taskforce who used Fannie’s program and Freddie’s program, and we had single-family lenders. By the way, out of our 24 members [on the taskforce], only three of them were big banks. The rest were all independent mortgage bankers, community banks, credit unions. We had two subcommittees on the GSE taskforce that wrote the paper. Both were headed by mortgage bankers. We had the banks at the table too. Ultimately, it was a unanimous vote of support at where we ended up. Why this is important is that we have been working with the Senate committee. I have been called to private briefings. I have been to two briefings with the full committee, Democrats and Republicans together in the same room, at their request. One was a panel with other trade groups, like the American Bankers Association, which represents small community banks. They are fully in agreement. They just released a principles document, which looks like it could have been our paper. The home builders are completely in agreement with what we are proposing.
It is clear that [the Senate Banking committee members] view the MBA paper as one that can be considered as core value proposition for a future model. My meetings with both Democrat and Republican leadership on the Hill and those in the administration, the feedback has been great. So, I see them working together and I see them beginning to align around the concepts that are very consistent with our paper or the American Bankers Association principles document, with the home builders principles document, with the National Multifamily Housing Council principles document, and so many others who are not being persuaded, duped into following the efforts of the hedge funds. They are only in this for one thing. If we don’t protect our future by getting good legislation, we are going to end up repeating history. That is what I think we all need to focus on.
*************************************************************
ICBA also disagrees with MBA’s reform plan, here is ICBA’s argument,
Bankers’ groups urged lawmakers at a Senate Finance Committee hearing last week to reform housing finance to allow continued access for community banks.The Independent Community Bankers of America (ICBA) advocated for Congress to enact reforms that promote competition and avoid dangerous concentration in the mortgage lending industry, particularly with government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
“ICBA strongly supports reform, but it is essential to borrowers and the broader economy that the details of reform are done right,” Jack Hopkins, president and CEO at CorTrust Bank in Sioux Falls, South Dakota, said on behalf of ICBA. “The worst outcome in GSE reform would be to allow a small number of mega-firms to assume the size and scale of Fannie and Freddie under the pretense of creating a private sector solution strong enough to assure the markets in all economic conditions. Any solution that promotes consolidation is only setting up the financial system for an even bigger collapse than the one we’ve just been through.”
The GSE secondary market should continue to be impartial and provide competitive, equitable, direct access for all lenders on a single-loan basis that does not require the lender to securitize its own loans, stated Hopkins. Pricing to all lenders should be equal regardless of size or lending volume.
At the hearing, title “Housing Finance Reform: Maintaining Access for Small Lenders,” Hopkins made several recommendations to improve housing finance.
He suggested creating an explicit government guaranty on GSE mortgage-backed securities (MBS) supported by a catastrophic mortgage insurance fund that the Federal Housing Finance Agency (FHFA) can administer. Further, Hopkins recommended changing the GSE corporate charters from the current government-chartered, shareholder-owned, publicly traded companies, to regulated financial utilities that are shareholder owned.
He also offered administrative recommendations for reform, such as requiring the FHFA to review and approve capital plans, establish prudent risk based capital levels as required by the 2008 Housing and Economic Recovery Act (HERA) and set reasonable timeframes and milestones for achieving re-capitalization goals.
The American Bankers Association also testified, discussing the need for GSE reforms.
“These legislative reforms are critical,” Brenda Hughes, senior vice president and director of mortgage and retail lending for First Federal Savings of Twin Falls, Idaho, said on behalf of ABA. “Congress should not defer action any longer. Nine years of conservatorship is more than enough.”
An explicit, fully-priced, fully-paid-for federal guarantee for a targeted portion of the mortgage market will serve as a catalyst for broader market growth and development, she said.
“Absent aggregation and securitization, access to long-term, lower-rate funding would be far more difficult to come by for most primary lenders,” Hughes said. “The government guarantee provided to mortgage-backed securities guaranteed by the GSEs makes them more attractive to the capital markets, ensuring liquidity. As we consider reform, these elements must be preserved and remain available to all primary market participants regardless of size or location.”
She advocated for tailored legislation that takes a surgical approach to altering the current system.
TimelessInvestor
David Stevens’s argument on MBA reform plan – does not make much sense to me
Here is latest David Stevens’s argument on MBA reform plan. I do not think it makes much sense to me.
my comments:
The following is Stevens’s argument
MBA’s reform plan protects small lenders
The Senate banking committee resumed its hearings on Thursday on reform of the government-sponsored enterprises Fannie Mae and Freddie Mac. Ahead of the latest hearing, David Stevens, president and chief executive officer of the Mortgage Bankers Association (MBA) spoke with Scotsman Guide News about GSE reform. Stevens testified on June 29 before the Senate committee in support of MBA’s plan to re-charter the GSEs as strongly regulated private utilities, and create a system with potentially several similar companies competing for business in the secondary market.
Why does MBA advocate for multiple GSE entities?
Why would smaller lenders have nothing to fear from the MBA plan?
Quite frankly, I think small lenders should fear not doing legislative reform. The greatest fear that small lenders should have is to allow this duopoly to return to its original state. Keep in mind, and this is fact, between 1998 and 2010, the market share of the 10 largest single-family originators in this country rose from 40 percent to almost 80 percent. That was done because the GSEs, when they needed market share, it was a whole lot easier to go cut a deal with one big lender than to drop G-fees for a thousand lenders. What we saw pre-conservatorship was what were known as alliance deals at the time. They would cut a deal with a Countrywide or Washington Mutual or whoever it would be who was big at the time for all their business, and they would give them a guarantee fee that was, at times, 20 basis points lower than what they were giving their smaller lenders. I personally know this because in 2011 when I first came to MBA, I brought three small independent mortgage bankers to meet with Ed DeMarco [former acting director, Federal Housing Finance Agency], followed by several letters both to the regulator and to the Hill, calling for level guarantee fees. Even in 2011, they were not level. Bigger institutions were getting better deals. It wasn’t just in price, but in credit terms. So, you release these guys back to their original state, the only thing that is protecting you is the hope that the regulator is going to do a good job. Because, unless you lock in the level playing field legislatively, we are going right back to the way things were for the couple decades prior to the failing of these two companies.
If you read our plan, it starts in great length with an overview of why small-lender access is preserved. It starts with public, transparent pricing, with no special deals for any lender, large, small, it all has to be evenly priced, just like you get in a Ginnie Mae program and with the FHA program. That is not the way it has been in the past — no special credit deals for anybody, no deals for market share. It retains all of the execution options, cash window, securitization, leaving lenders large and small the ability to transact with a future guarantor any way they want, but it locks it in by legislation, not by the whim of the regulator.
Why is MBA against allowing the GSEs to retain some of their earnings and build up a small buffer to avoid draws on the Treasury line?
Because it is a diversion. They don’t need a buffer. They have got $240 billion in a line of credit, and there is absolutely no reason. In my view, people who are focusing [on this] are being prodded by the hedge funds, who just want to delay this thing in the hopes that they can recap and release, and make a big profit on the stock at the expense of what will really be small lenders. I, quite frankly, think they duped these unsophisticated and less effective organizations to buy into these lies. I don’t know why people are worried about capital. Allow them to retain a couple of billion dollars on top of $240 billion that already sits there for them? It is an absolute ridiculous sideshow that diverts attention on our need to get this done, beat the clock, so we don’t end up with perhaps a much more conservative regulator, who views the role of government as too large and who won’t necessarily protect the level playing field that we have today. The job at hand is keep pressure on Congress to do legislative reform, create more competition, level the playing field, make it permanent by legislation, and stop falling into false narratives that are being promoted by profit seekers and speculators who bought the shares and hope to make a windfall, which will, quite frankly, come at the expense of lenders and consumers.
Given the divisive political environment, what are the chances of anything getting out of Congress?
Look, the easy bet is to say that Congress can’t get anything done. If you ever come to my office, on my wall, there is a bill that is framed with the President’s pen. It is a piece of legislation that I promoted when I ran FHA [Federal Housing Agency], and it went through Congress at a very difficult time when the Tea Party had come in. There were only four no votes on it. The White House was so excited about it, they gave me a red-lined copy of the bill framed with the President’s pen. I am staring at it right now. You can get stuff done. The interesting thing about GSE reform is that it is not partisan. Healthcare, wiping out Obamacare, it hit to the core values of the respective extremes of both parties, one that will defend it to the end of the earth and the other that wants to tear it apart. That became a very partisan divide. To some degree, I think that tax reform could strike into that, or trying to destroy Dodd-Frank. These are things that come with predisposed, partisan divisiveness that makes it very difficult. But Sen. Crapo [Sen. Mike Crapo, R-Idaho, chair of the senate banking committee], and Sen. Brown [Sherrod Brown, D-Ohio, ranking member of the committee] were both very clear that GSE reform is not partisan. It is technical and it is complex in terms of finance. But, to that end, they both agree that we need to move forward. Even [Sen. Elizabeth Warren, D-Massachusetts] came up to me after the Senate hearing that I testified at a couple of weeks ago, and made it very clear that she is opposed to the duopoly, and wants to do GSE reform. This is one where we have Sens. [Bob Corker, R-Tennessee and Mark Warner, D-Virginia] working together, Democrats and Republicans, where we have Crapo and Johnson [former Sen. Tim Johnson, D-South Dakota], Crapo and Brown, different parties holding joint hearings, joint listening sessions and the White House.
I had a meeting with a very high-level member of the administration a couple of days ago on this subject. He made very clear that he thinks we are going to get it done. It takes commitment in a bipartisan fashion. It takes the White House to commit that they want to get it done.
Do you see any common ground emerging in the industry and among the parties?
Yeah, that is a great question. I am a weird dude, man. I grew up in mortgage banking as a loan rep and ended up running a large regulator as the FHA commissioner, and now running the Mortgage Bankers Association. I am loan rep who somehow got wrapped up into politics. I spend all my life, every day, in politics. I am in the White House frequently. I am in the Treasury Department and I am up on the Hill with members of Congress. As you know, we had one hearing on GSE reform so far, the introductory hearing. They only had three witnesses. It was me, a consumer advocate, Mike Calhoun [president, Center for Responsible Lending] and Ed DeMarco, and that is where they started. I think [the Senate Banking Committee went that] route because they recognize that our plan, the MBA plan, actually represents the entire waterfall of lending in America.
We had multifamily lenders on our taskforce who used Fannie’s program and Freddie’s program, and we had single-family lenders. By the way, out of our 24 members [on the taskforce], only three of them were big banks. The rest were all independent mortgage bankers, community banks, credit unions. We had two subcommittees on the GSE taskforce that wrote the paper. Both were headed by mortgage bankers. We had the banks at the table too. Ultimately, it was a unanimous vote of support at where we ended up. Why this is important is that we have been working with the Senate committee. I have been called to private briefings. I have been to two briefings with the full committee, Democrats and Republicans together in the same room, at their request. One was a panel with other trade groups, like the American Bankers Association, which represents small community banks. They are fully in agreement. They just released a principles document, which looks like it could have been our paper. The home builders are completely in agreement with what we are proposing.
It is clear that [the Senate Banking committee members] view the MBA paper as one that can be considered as core value proposition for a future model. My meetings with both Democrat and Republican leadership on the Hill and those in the administration, the feedback has been great. So, I see them working together and I see them beginning to align around the concepts that are very consistent with our paper or the American Bankers Association principles document, with the home builders principles document, with the National Multifamily Housing Council principles document, and so many others who are not being persuaded, duped into following the efforts of the hedge funds. They are only in this for one thing. If we don’t protect our future by getting good legislation, we are going to end up repeating history. That is what I think we all need to focus on.
*************************************************************
ICBA also disagrees with MBA’s reform plan, here is ICBA’s argument,
Bankers advocate for GSE, housing finance reforms at hearing
Bankers’ groups urged lawmakers at a Senate Finance Committee hearing last week to reform housing finance to allow continued access for community banks.The Independent Community Bankers of America (ICBA) advocated for Congress to enact reforms that promote competition and avoid dangerous concentration in the mortgage lending industry, particularly with government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
“ICBA strongly supports reform, but it is essential to borrowers and the broader economy that the details of reform are done right,” Jack Hopkins, president and CEO at CorTrust Bank in Sioux Falls, South Dakota, said on behalf of ICBA. “The worst outcome in GSE reform would be to allow a small number of mega-firms to assume the size and scale of Fannie and Freddie under the pretense of creating a private sector solution strong enough to assure the markets in all economic conditions. Any solution that promotes consolidation is only setting up the financial system for an even bigger collapse than the one we’ve just been through.”
The GSE secondary market should continue to be impartial and provide competitive, equitable, direct access for all lenders on a single-loan basis that does not require the lender to securitize its own loans, stated Hopkins. Pricing to all lenders should be equal regardless of size or lending volume.
At the hearing, title “Housing Finance Reform: Maintaining Access for Small Lenders,” Hopkins made several recommendations to improve housing finance.
He suggested creating an explicit government guaranty on GSE mortgage-backed securities (MBS) supported by a catastrophic mortgage insurance fund that the Federal Housing Finance Agency (FHFA) can administer. Further, Hopkins recommended changing the GSE corporate charters from the current government-chartered, shareholder-owned, publicly traded companies, to regulated financial utilities that are shareholder owned.
He also offered administrative recommendations for reform, such as requiring the FHFA to review and approve capital plans, establish prudent risk based capital levels as required by the 2008 Housing and Economic Recovery Act (HERA) and set reasonable timeframes and milestones for achieving re-capitalization goals.
The American Bankers Association also testified, discussing the need for GSE reforms.
“These legislative reforms are critical,” Brenda Hughes, senior vice president and director of mortgage and retail lending for First Federal Savings of Twin Falls, Idaho, said on behalf of ABA. “Congress should not defer action any longer. Nine years of conservatorship is more than enough.”
An explicit, fully-priced, fully-paid-for federal guarantee for a targeted portion of the mortgage market will serve as a catalyst for broader market growth and development, she said.
“Absent aggregation and securitization, access to long-term, lower-rate funding would be far more difficult to come by for most primary lenders,” Hughes said. “The government guarantee provided to mortgage-backed securities guaranteed by the GSEs makes them more attractive to the capital markets, ensuring liquidity. As we consider reform, these elements must be preserved and remain available to all primary market participants regardless of size or location.”
She advocated for tailored legislation that takes a surgical approach to altering the current system.
About Timeless Investor
My name is Samual Lau. I am a long-term value investor and a zealous disciple of Ben Graham. And I am a MBA graduated in May 2010 from Carnegie Mellon University. My concentrations are Finance, Strategy and Marketing.