TORONTO, Canada -The Mortgage Bankers Association of America (MBA) has enumerated specific GSE activities that go beyond the scope of their respective charters in an issue paper released during the MBA's 88th annual convention last week.

The association said that these activities "appear to run afoul" of the GSEs' secondary market charters.

MBA cited Freddie Mac and Fannie Mae ventures such as the agreement with McDonald's to offer electronic kiosks for consumer mortgage information, the financing of electronic broker Lending Tree, and the deployment of automated valuation models that "crowd out" other competing systems.

In the paper, the MBA tried to clearly distinguish between primary and secondary markets to see if the GSEs are exceeding the mandate to limit their operations to the secondary market for residential mortgages.

Consumer casualties

Despite admitting that the GSEs play a pivotal role in the mortgage lending industry by making sure that the country has a sufficient and stable source of affordable mortgage credit, the bankers association also said, however, that, "By extending beyond the intended boundaries of their charters, the GSEs could upset the equilibrium between the primary and secondary mortgage markets upon which the continued success of the American system of home finance depends."

MBA said that the immediate casualties may likely be existing lenders as well as other primary market players, but it warned that consumers will be the real losers in the end.

"Less competition means higher borrowing costs for consumers and fewer financing options," the MBA said. "It means less responsiveness to consumer needs, especially for non-traditional borrowers."

Though some officials from the GSEs pointed out that the concerns enumerated are evergreen points that the MBA has raised in the past, other observers were saying that the issue paper is the most specific the association has ever been with regard to the exact activities it considers beyond the GSEs' purview.

In an MBA press release, the association said that it is not putting forth any new MBA policy towards the GSEs. "Rather, it is the culminating activity of mission analysis undertaken by an MBA blue ribbon panel of industry experts after legislation was introduced by Representative Baker (R-LA)," said the release. "The issue paper sets forth an analytical framework against which to measure GSE initiatives."

Response from the GSEs

At a press luncheon, Freddie Mac officials said that they have been having conversations with the MBA for a year with regard to the points raised in the paper. However, the current MBA document apparently does not reflect the input given.

Though acknowledging that Freddie has maintained a good relationship with the MBA, executive vice president in the single-family business Paul Peterson said that the MBA and the Agency has "agreed to disagree" on the parameter of GSE involvement.

Peterson specifically addressed Freddie's deployment of automated valuation models when he stated, "Technology is changing the ability to do things and how."

He said that when Freddie was first chartered the underwriting of the loans that were placed into the Agency's system was done manually by following certain guidelines. But things are different now with the significant increase in loan volume.

There is also the underlying issue, he added, which is the need to protect yourself against credit, a growing concern nowadays.

At another press conference, Fannie Mae chairman and chief executive officer Franklin Raines said that the demarcation line between primary and secondary functions is clear. He explained that most loans are done through securitization and that Fannie does not have to do the underwriting of the mortgages.

Meanwhile, aside from the activities mentioned above, the MBA also cited four more instances of the GSEs overstepping their bounds.

These are: maintaining GSE Web sites and toll-free numbers targeted at consumers; making direct contact with mortgage brokers and real estate agents as well as the lender's customers; developing proprietary technologies as a separate for-profit business line, advertising and offering other promotional activities though the GSEs' charitable foundations that target consumers and that appear to promote the agencies' corporate "brands."

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