Any reform to the secondary market should provide smaller lenders with equal access to that segment of the market, an industry association has said. But proposals to increase the complexity of an independent bank’s ability to sell their loans have professionals worried – especially about the cash window they rely on.
“One of the big issues we have seen with all of the proposals that have floated around on GSE reform has to do with the cash window – many of them don’t provide for that,” Ron Haynie, senior vice president of mortgage finance policy for the Independent Community Bankers of America (ICBA) told MPA. “That’s a big need for our members, most of who sell loans for cash and don’t want to securitize.”
The Mortgage Bankers Association (MBA) has released a concept paper suggesting that any reform to the secondary market must provide smaller lenders with equal access and execution opportunities, while also containing an explicit federal guarantee for certain mortgage-backed securities.
While the paper addresses many small lender needs including price certainty, execution for both servicing-retained and servicing-released loans and quick funding, Haynie said provision of a cash window is one of the most crucial needs.
In order for reform to be beneficial to small lenders, it must include some facility for this window, referring to the practice of small lenders who don’t have the volume to issue an MBS selling individual loans to Fannie Mae, Haynie said. Fannie will then issue its own MBS backed by an accumulation of these loans.
MBA’s concept paper suggests that as the GSE portfolios wind down, Fannie Mae and Freddie Mac should maintain sufficient balance sheet space to allow for the aggregation of loans from smaller lenders who are not yet ready to securitize. Additionally, the paper calls for the FHFA Common Securitization Platform initiative to include plans for the acceptance of small lot deliveries into multi-lender pools, both of which Haynie sees as central to moving forward.
“MBA mentioned in the paper that it’s going to be difficult for smaller sellers to be able get competitive pricing on credit enhancement and single loan pools,” Haynie said. “That’s why the cash window – the whole process that GSE goes through today – works well for small lenders. Anything I’ve seen thus far I don’t think would get us there. That’s our big concern.”
MBA’s concept paper is the third piece of a five-part plan which recommends immediate steps the FHFA can take to ease the transition as policymakers debate the future of the government role in housing finance.