Fine Points


Getting GSE Format Right

By Camden Fine

Like a fragile butterfly struggling free from its cocoon, the politically intractable and ideologically divisive issue of federal housing finance reform is, once again, fluttering to life in Washington this spring. After several fits and starts and pullbacks, several new legislative proposals are trying to take wing.

Congressional leaders and administration officials are seriously focusing on federal housing finance reform, to decide both the future of Fannie Mae and Freddie Mac—an unresolved policy issue from the Wall Street financial crisis—and the monumentally consequential question of the right level of government involvement in the secondary mortgage market. ICBA supports comprehensive housing reform to draw private capital back into the secondary market and to protect taxpayers from future bailouts. But it’s crucial that any reform, which will impact 20 percent of the nation’s economy, is not simply done but done right.

Whether Washington might try to reconstruct an entirely new government-backed secondary market system from scratch—which itself would bring a host of unknown risks into play—or whether it will make far fewer changes remains to be seen. But because various influential lawmakers support a wide range of vastly different measures from radical to minimal, many ideas are in play. Nearly every bill or draft legislation on this issue has components—and hidden unintended consequences—that would or could disrupt our current secondary market system, which, while not perfect, still works efficiently and equitably for community banks and most stakeholders.

Where a workable middle ground lies is uncertain, but unfortunately Wall Street’s lobbyists are already pushing dangerous measures that would allow the largest financial firms to dominate and control the mortgage securitization process.

Fortunately, because ICBA has been a credible and constructive participant at the discussion table from the beginning, any final secondary mortgage market reform law would have to be acceptable to the nation’s community banks. Foremost at issue for ICBA is maintaining an impartial secondary market for all mortgage lenders. To ensure this, ICBA has made it clear that any workable reform legislation must follow these principles:

  • allow community banks to sell loans through an independent entity that does not compete with community banks,
  • do not appropriate community bank customer data for cross-selling of financial services,
  • preserve the Federal Home Loan Banks as a community bank access point to the national secondary market,
  • ensure pricing of any government guaranty is fair and equal for all market participants regardless of volume of loans guaranteed, and
  • do not result in the consolidation of the housing-finance system to only a select few mega-financial institutions.

Needless to say, the stakes involved with this issue are extraordinarily high for community banks and all of America. So whatever may happen, ICBA will stay at the table representing community banks and Main Street America. Of course, we need you and your colleagues to watch this debate and weigh in also. Whatever reforms Congress may adopt would almost certainly determine how well the mortgage finance marketplace functions, and whether it functions well at all, for generations to come.

That’s a very long time, so we all must work together to ensure that we not just get this reform done but done right.

Reach Camden R. Fine at