The American Bankers Association (ABA) believes the role of the GSEs and FHA in the mortgage market should be gradually reduced so that 60% of home financing comes from the private sector with “no government aid.”

As part of a transition, Fannie Mae and Freddie Mac could be rolled into well-regulated cooperatives or public utilities that would ensure “stability and accessibility in the event of a market failure,” Christopher Dunn told the Senate Banking Committee on Tuesday.

Speaking on behalf of ABA, the president and chief executive of South Shore Savings Bank, Weymouth, Mass., said the Federal Housing Administration and the successor to the GSEs and should be focused on  affordable rental housing, first-time homebuyers and other borrowers “whom may not readily qualify for conventional financing.”

While a transition to a new system may take a “number of years,” Dunn called for starting the process now in terms of raising the guarantee fees Fannie and Freddie charge and lowering the conforming loan limits.

“The current G-fees are too low,” he said.  Raising the G-fees in an “orderly and well-detailed manner” will allow the private sector to “compete with the GSEs for business.”

“The Massachusetts community banker also called for lowering the $729,570 maximum loan limit in high cost areas and the $417,000 loan limit in other regions.

 The conforming loan limits are “dramatically higher than necessary for the purchase of a modestly priced home, especially in light of the housing price declines nationwide,” Dunn testified.

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