Regulators and mortgage industry professionals spent part of the day Monday discussing the future mortgage finance market at the Mortgage Bankers Association 100th Annual Convention & Expo.
Participants continued to argue for more private capital in the space and the gradual reduction of Fannie Mae and Freddie Mac. The housing agencies recent introduction of credit-risk sharing deals shows the market at least trying to move in that direction, the panelists said.
However, some mortgage experts firmly believe private investors will not take a stake in the industry until competitors are established in the market.
"It’s a catch-22 because in the absence of a notion of GSE reform, where it's headed and what structure it will take, it’s difficult for investors come back in and develop a robust securitization market," explained Mike Heid, president of Wells Fargo (WFC) home mortgage.
He continued, "The absence of a clear picture and whom you’re competing with hinders the comeback of private capital."
Federal Housing Administration Commissioner Carol Galante argued that investors won’t make a comeback in the private sector until they know they are in the right-sized mortgage market.
For instance, on a loan count basis, the FHA was issuing 1.2 million loans in 1999. Currently, the FHA is issuing the same amount of loans, but the market is significantly smaller.
Consequently, it calls into question the roles private capital and the government needs to play when trying to create a solid, secondary mortgage market, Galante explained.
While government-sponsored enterprise reform is inevitable, market participants question which entity should be reformed first: the mortgage giants or the government.
Galante argues that FHA and GSE reform should go hand-in-hand to create less disruption, establishing a safer transition.
However, McCue Mortgage Co. president William McCrue disagreed with the FHA commissioner, arguing that a newly developed secondary market would be "a real disappointment and disservice to the American people."
McCrue believes the only role the government should serve in the mortgage market is to underserved borrowers.
Regardless of what the FHA and GSE's roles will be in the foreseeable future, all participants agreed that housing finance reform needs to be at the forefront of Congress’ priorities.
"Reform is absolutely essential," Galante concluded. "We cannot continue with a system where we have privatized gains and socialized losses."
