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MBA Highlights Growing Concerns Over FHFA's Execution of Securitization Plan

by devteam July 11th, 2013 | Share

ThernMortgage Bankers Association (MBA) has released the fifth and last inrna series of concept papers outlining its suggestions for immediaternsteps Freddie Mac, Fannie Mae (the GSEs), and the Federal HousingrnFinance Agency (FHFA) can take to ease the transition to a newrnsecondary market. The papers have largely focused on the planrnoutlined by FHFA for developing a Common Securitizaton Platform. FHFA says this Platform will create efficiences in the securitizationrnprocess by standardizing certain rules-based functions. </p

Previous Papers in this Series:</p

MBA Highlights Opportunity For Private Capital Risk-Sharing With GSEs

MBA Suggests More Level Playing Field for Smaller Lenders</p

GSE “Black Boxes” and Reps/Warrants Must Change – MBA</p

Inrnthe concept paper released today MBA said that the timeline and scopernof the proposed Platform have expanded considerably since the idearnwas announced and this growth is causing concern that it willrnultimately not meet the needs of the market. Despite occasionalrnupdates on the project, MBA says FHFA has not established a formalrnand transparent process with which to communicate with stakeholders. Thus inconsistent messages are coming from FHFA and the GSEs. MBArnsaid it also has concerns regarding the Platform’s governance andrnownership structure.rn</p

MBArnsaid it believesrnthernPlatformrnshouldrnultimatelyrnbernownedrnbyrnthernindustry</basrnarncooperativernand transition to a cooperative structure should begin now by givingrnthe industry a place at the table to guide early development. Itrnagrees with FHFArnActingrnDirectorrnEdrnDeMarcornthat thernPlatformrnshouldrnnotrnassumernanyrncreditrnorrninterestrnraternrisks,rnthoughrnitrnwillrnhavernoperationalrnrisksrnand MBA said it believes it should bernregulatedrnbyrnthernFederalrnReservernduerntornitsrncentralrnrolernwithinrnthernpaymentsrnsystem.</p

Becausernof the absence to date of a formal and transparent mechanism forrninput and because the Platform is just one piece of a larger puzzle,rnMBA says it is critical to appoint an industry advisory panel withrnreal authority and to convene it before further development isrnundertaken.</p

ThernAssociation says it also has concerns about the Platform’s technicalrndesign. Hiring of private contractors should be conducted in an openrnand transparent manner and stakeholders should be able to evaluaternthe service providers that will be at the heart of the agencyrnsecurities market. “The current lack of transparency</bsurrounding the bidding process has the possibility to shut out muchrnof the expertise needed to ensure that this Platform lives up to itsrnpotential," the paper says. </p

MBArnsays that it and its industry parties have strongly argued that the core of the Platform project should remain modest to start in orderrnto maximize the chance of success. It should be revised to focus onrndeveloping a quality replacement for the GSEs’ current securitizationrnactivities. While FHFA believes that the Platform could serve as anrnoptional service for private issuers, MBA says this should be a goal only after the core agency functionality is completed. “AffordingrnprivaternissuersrnthernoptionrntornusernthernPlatformrnwouldrnensurernthatrnmarketrnstandardsrnarerndrivenrnbyrncompetition,rnbenefitingrnconsumers,rninvestors,rnandrnlendersrnalike.rnThisrnoptionrnwouldrnalsornhelprnlevelrnthernplayingrnfieldrnbyrnallowingrnsmallerrnissuersrntornefficientlyrnaccessrnthernsecondaryrnmarket.”</p<pThernpaper says that FHFA's initial goal of replacing obsolete systems atrnthe GSEs once rather than twice was the right one however there hasrnbeen little mention of cost savings after FHFA’s initialrnpresentation. Instead it appears that the current plans could add torncosts for the system as a whole at least near term. The Platform’srndevelopment should be realigned with the original goals of costrnsavings and efficiency.</p

ThernPlatformrnshouldrnbernbuiltrnfromrnthernstartrntornfacilitaterntherndeliveryrnofrnsmallrnlotsrn(asrnfewrnasrnsinglernloans)rnintornmulti-lenderrnpools.rn Thisrnisrnanrnimportantrnpre-condition</bforrnarnvibrant,rncompetitivernmortgagernmarketrnthatrnworksrnforrnborrowers,rninvestors,rnandrnthernAmericanrntaxpayer,rnMBA said.

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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