The keynote speakers at this week’s American Securitization Forum 2011 annual meeting in Washington D.C. gave a bipartisan call from U.S. representatives to save the 30-year mortgage, saying that without this product a significant portion of homebuyers will not be served.
Speaking before the gathering, U.S. Representative John Campbell and U.S. Representative Gary Peters reiterated the importance of the U.S. housing market to the overall health of the U.S. economy. They also said that a significant cure to the housing market is to implement legislation for housing finance recovery.
“Borrowers need to know with confidence how home loans will be structured going forward,” Campbell said. “Its is one of the contributing factors to have the economy move forward.”
As part of the bipartisan proposal on Housing Finance Reform, Campbell and Peters said that replacing the GSE guaranty would be new guaranty associations. These “well capitalized private entities” would be regulated by the Federal Housing Finance Agency.
The associations would provide guarantees on loans with 20% down payment and would be able to buy Federal-backed insurance on those mortgages.
All of the cost of the guaranty would be placed in a fund that would cover any future losses. The U.S. representatives added that initially they hope to start with at least five associations, but that over time they envision at least a dozen of these players in the market.
Those opposed to the proposal claim that these new associations sound very much like Fannie Mae and Freddie Mac as they would provide the same basic functions that the GSEs do in the current housing finance structure.
Campbell argued that the new associations would provide explicit guarantees and offer that guaranty based on the performance of the loan.
The GSEs , he explained, provided loans that were implicit with no limit and it provided the guaranty on the entity, not the loan specifically. “The model for these new associations would be similar to [Federal Deposit Insurance Corp.] insurance,” he said. “If we don’t do a government guaranty, we will loose the 30-year fixed-rate mortgage.”