The Senate Banking Committee, chaired by Tim Johnson, D-S.D., held a hearing on Nov. 5 titled "Housing Finance Reform: Protecting Small Lender Access to the Secondary Mortgage Market," another in the series of hearings the committee is holding throughout the fall.
Witnesses supported one of the key principles underlying the draft bipartisan bill S. 1217 — that the reformed system of mortgage securitization be accessible to small lenders everywhere in the country, at all, times, on favorable terms.
Richard Swanson, CEO of the Federal Home Loan Bank of Des Moines, represented the Council of Federal Home Loan Banks (FHLBs), the trade association for the group of 12 regional banks that serve the remnant of the old savings and loan industry, the banking industry and a variety of other mortgage originators that sell mortgages to investors as collateral for mortgage-backed securities (MBSs). He insisted that small lenders should receive the same terms as their larger competitors do and that the largest banks not be given discounts based on the volume of business they do with the FHLBs.
William Loving, Jr., CEO of Pendleton Community Bank in West Virginia and chairman of the Independent Community Bankers of America, praised the simplicity of the present securitization model and urged that it be preserved under the reformed system.
Ironically, but instructively, one of the conditions he proposed for the reformed system is that it be well-capitalized, but not by the community banks, because the cost would be "prohibitive." Rather, he suggested that this burden be financed from the profits of the current government-sponsored enterprises, Fannie Mae and Freddie Mac.
Bill Cosgrove, CEO of Union Home Mortgage Co. and chairman-elect of the Mortgage Bankers Association, one of the crucial lobbies in the coalition supporting the draft bill, returned to the theme that the reformed system should not maintain disparities between the terms available to the small and large originators, respectively.
Thus, small lenders would have the options of selling whole loans that would be packaged into securities representing a number of lenders or single loans, and that the servicing of the loans could either be retained or released at the option of the lender. He acknowledged that a number of models might be needed in order to accommodate all of these options for all participants.
Jeff Plagge, CEO of Northwest Financial Corp. in Iowa and chairman of the American Bankers Association, supported the elements put forward by all of the lobbies that are backing the draft bill. He then addressed the call by consumer groups and some senators for a "duty to serve" underserved and rural communities as a condition for the explicit federal guarantee the industry considers essential to the new system.
He insisted that the Community Reinvestment Act already obligates banks to serve all segments of their communities, so there is no need for a new mandate styled as a duty to serve.
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