In the American Securitization Forum’s ongoing bid to restore securitization’s once-prominent role in funding housing, the trade group released a clutch of proposals Tuesday.
At the top of the list was jacking up the guarantee fees paid by lenders to Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac as well as the Federal Housing Administration (FHA). The current level of g-fees makes securitizations of GSE and FHA loans more economical than those issued directly by private sector originators.
The ASF would also like to see conforming loan limits reduced for the GSEs and FHA since in its view that would increase the supply of mortgages available to the private-label space. In addition, the trade group encourages deals from government entities that would sell credit risk to private investors without the government guarantee. “[This] would help bring back private capital by testing the market’s willingness to absorb credit risk through price discovery,” the ASF said.
Other recommendations were of a regulatory nature, including a push to have the criteria for Qualified Mortgages (QM) and Qualified Residential Mortgages (QRM) aligned, and to have QMs considered Category 1 loans in risk-based capital rules.
Currently, the GSEs and FHA directly or indirectly guarantee 90% to 95% of fresh mortgage supply in the U.S.
“The ASF and its members, along with virtually all other market participants and policymakers from both sides of the political aisle, believe that this level of government involvement is neither sustainable nor advisable,” said the trade group’s executive director, Tom Deutsch.