Don't ditch government guarantee, industry head pleads with Congress

by Ryan Smith06 Nov 2013

The head of the American Bankers Association asked Congress Tuesday to maintain a federal backstop for the mortgage market.

Lawmakers on both sides of the aisle in Washington have been making noises about revamping the nation’s housing system and the possible elimination of Fannie Mae and Freddie Mac. But while some Senate lawmakers want to replace Fannie and Freddie with a new institution that would continue to provide a government guarantee for mortgages, House Republicans have favored a strategy that would essentially privatize the mortgage market.

ABA Chairman Jeff Plagge, testifying before the Senate Banking, Housing and Urban Affairs Committee Tuesday, stressed the importance of keeping the government at least partially in the mortgage game.

“I believe that a government guarantee for the whole mortgage industry is important, but it is particularly helpful to low and moderate income mortgage borrowers,” Plagge said. “That guarantee must be explicit, fully priced into the cost of each mortgage and, most importantly, available to all eligible primary market lenders, regardless of their size, charter type, geographic location or number of loans sold into the secondary market. If community banks’ access is curtailed or denied, or their pricing in the market is inequitable, they and the communities they serve will suffer.”

However, Plagge said the mortgage market should be predominantly run by private capital.

“Fostering a private market for the vast majority of housing finance must be part of any federal policy and should be balanced with government support for certain market segments,” he said.

“Reforming the mortgage market will be a complex undertaking with far-reaching consequences for our economy,” Plagge added. “It must be undertaken in a thoughtful, orderly manner, and done with a careful transition over a number of years to ensure that the mortgage markets are not destabilized.”


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