MBA, Senate Banking Committee Turn Spotlight on Small Lenders

Last week, the Senate Banking Committee continued its series of hearings on Housing Finance Reform. Ahead of the hearing, the Mortgage Bankers Association and its members offered a number of letters expressing support for small lenders and how its proposal for secondary mortgage market reform supports the small mortgage lender market.

In a letter to the Banking Committee, MBA President and CEO David Stevens, CMB (who testified before the Banking Committee on June 29) noted MBA’s diverse membership of lenders, investors, brokers, vendors, and others in the real estate finance sector includes nearly 650 independent mortgage bankers, community banks and credit unions, representing nearly 80 percent of its single-family membership.

In April, MBA published GSE Reform: Creating a Sustainable, More Vibrant Secondary Mortgage Market ( Stevens said the paper, created by the MBA Task Force for a Future Secondary Mortgage Market, reflects a broad cross-section of the industry, including small and mid-sized lenders. Provisions of the plan include:

— Specifying equitable, transparent, and direct access to secondary market programs in both the mandate of the regulator and the charters of the Guarantors;

–Prohibiting special pricing or underwriting exceptions for certain lenders based upon loan volume or other elements of their business model;

–Requiring all Guarantors to offer cash window and small pool execution options;

–Preventing vertical integration by instituting strict statutory limits on lender ownership stakes in Guarantors;

–Maintaining the “bright line” separating the primary and secondary markets to ensure that Guarantors do not compete with lenders; and

–Minimizing operational risks associated with the transition to a new system by preserving the assets and infrastructure of the current system wherever possible.

“We believe [this plan] will lead to a more stable system that protects taxpayers while also promoting broad credit availability in a primary market featuring lenders of all sizes and business models,” Stevens said. “Our plan features a number of provisions specifically designed to protect small and mid-sized lender access to the secondary market.”

Stevens reiterated MBA’s position that Congress must take action. “Without legislation to enshrine these administrative reforms into law, however, any gains that have been made by small and mid-sized lenders remain subject to the discretion of future [Federal Housing Finance Agency] directors,” he said. “Post-crisis actions undertaken by FHFA could be rolled back or even reversed in future administrations. And if Fannie Mae and Freddie Mac are released from conservatorship without further legislative reforms, FHFA cannot wield its authorities as conservator–which are considerably stronger than its authorities as regulator-to adequately protect small and mid-sized lenders.”

In a separate letter, trade groups representing predominantly small and mid-sized lenders involved in financing housing for low- and moderate-income families and first-time homebuyers also urged action, saying the presence of small lenders spurs competition in the market and increases choices for borrowers.

“Without clear and well-defined protections for small lenders, housing finance reform–or the failure to act on sensible reforms–risks returning us to the highly concentrated mortgage market that persisted in the lead-up to the financial crisis,” the letter said. “Most importantly, housing finance reform must ensure that small lenders have direct access to the secondary market and options to sell loans servicing retained or released without any forced dependence on a larger institution acting as an aggregator.”

The trade groups–representing nearly 40 MBA-affiliated state and local associations–endorsed the MBA plan. “There have been many proposals released recently to address housing finance reform,” the letter said. “Many support the principle of protecting small lender access. However, the plan developed by the Mortgage Bankers Association backs that principle with detailed, specific proposals–in statute–to create a level playing field for small and mid-sized lenders.”

In a third letter, CEOs of more than 100 small lenders, all MBA members, also endorsed the MBA plan.

“The market served today by the GSEs features a more diverse set of lenders offering more competition and choices for borrowers,” the letter said. “Independent mortgage bankers, community banks and credit unions have all gained market share, in part due to administrative reforms undertaken by the Federal Housing Finance Agency…However, without legislation to codify and strengthen the reforms put in place by FHFA, these gains remain at the discretion of future FHFA directors. As such, they are susceptible to being rolled back or reversed entirely.”

The MBA plan, the letter said, “addresses the needs of small and mid-sized lenders in a future system and ensures that we have the ability to compete with our larger competitors on a level playing field. The specific protections called for in the MBA plan align closely with reforms recommended by other groups, but are locked in through legislation.”

The Banking Committee also received letters from The Capital Markets Cooperative, Ponte Vedra Beach, Fla., which supplies products, services and capital to small and mid-sized residential mortgage lenders and works with 421 lenders., originating more than $100 billion in residential mortgages last year; and The Mortgage Collaborative, San Diego, a lender cooperatives that consists of 113 independent mortgage originators and community banks originating more than $185 billion annually.

The hearing, Housing Finance Reform: Maintaining Access for Small Lenders, featured other banking industry executives, including Brenda Hughes on behalf of the American Bankers Association; Tim Mislansky on behalf of Credit Union National Association; Jack Hopkins on behalf of the Independent Community Bankers of America; Charles Purvis on behalf of the National Association of Federally Insured Credit Unions; Wes Hunt on behalf of the Community Mortgage Lenders of America; and Bill Giambrone on behalf of the Community Home Lenders Association.