Innovation and lower costs became prominent themes at the National Secondary Market Conference sponsored by the Mortgage Bankers Association of America. Prominent players in the secondary market convened in San Diego, Calif. last week to discuss such high-profile issues like predatory lending and higher mortgage rates, along with how technology and e-commerce are shaping the entire industry from origination to securitization.

Among the wide array of speakers at the conference, Fannie Mae's vice chairman Jamie Gorelick discussed how discussion about the bill currently in Congress to place the government-sponsored enterprises under one regulator and stripping their lines of credit to the U.S. Treasury has created higher-than-necessary mortgage rates.

"Mortgage rates are 25 basis points higher than they would have otherwise been, and that differential persists," she said.

David Glenn, president of Freddie Mac, said he had also seen a rise in its rates, but not as high as those experienced by Fannie Mae.

Regulatory Matters

Armando Falcon, director of the Office of Federal Housing Enterprise Oversight, the safety and soundness regulator for Freddie Mac and Fannie Mae, discussed some of the regulatory affairs affecting the secondary market, particularly its risk-based capital rule currently being finalized and the effects predatory lending could have on the GSEs.

"Undoubtedly, the single most important regulatory issue related to the safety and soundness of Fannie Mae and Freddie Mac is OFHEO's risk-based capital rule, which is in the final stages of consideration," he said, adding that the agency is reviewing the thousands of pages of comments it has received and will issue the final rule as soon as he can.

On the issue of predatory lending, Falcon stated that OFHEO is on a task force with regulators, saying that "no honest lender condones the practice and we all have a desire to help combat it." He added that these loans raise credit risk, reputational risk, and legal exposure for the GSEs.

Furthermore, he added that the "buyer beware" saying is in effect when it comes to secondary market purchasers of predatory loans. "To effectively deal with predatory lending, we need to better understand the subprime mortgage markets in which such behavior frequently occurs," Falcon said.

He then stated that the agency is always seeking information to better carry out its mission and is currently working with the GSEs to ensure their loans are not creating "unacceptable risks."

Innovations and Technology

Alongside regulatory concerns, Falcon also addressed how technology is streamlining and eliminating steps in the mortgage process, citing that what can now be done in minutes over the computer used to take days and weeks.

He cited the development of HomeAdvisor Technologies Incorporated (HTI), a joint venture between Microsoft and Freddie Mac, with some of the nation's largest mortgage companies. Among HTI partners, loans can be originated, processed, closed, and securitized seamlessly. Falcon admitted that he is currently reviewing Freddie Mac's role in the program and HTI is "a development worth mentioning."

He added that even though HTI is not the first or only Web-based mortgage system, "It is the first to bring the largest players at nearly every stage of the process - Internet service providers, lenders, and the secondary market - into one fully-integrated system."

Falcon also complimented the MBA for its role in helping establish technological standards in the mortgage industry.

The HTI initiative, though, did not go without some criticism. William Fitzgerald, chairman of America's Community Bankers and Diane Casey, ACB's president and CEO, drafted a letter to Freddie Mac saying that the program will not will community banks.

"Our members feel quite strongly that this venture will operate only to further the needs and interests of those large originators among equity participants, most likely to the detriment of the smaller organizations," Fitzgerald said in a press release regarding the letter.

Fannie Mae also announced a technological revolution as well, saying it was teaming up with Ellie Mae, a Web-based mortgage firm, to offer its Desktop Originator available on the Web through Ellie Mae's site.

"Through this partnership, lenders and their sponsored brokers have an integrated platform for managing their customers and accessing an automated underwriting recommendation," said Michael J. Williams, Fannie Mae's senior vice president for e-commerce. "Fannie Mae will continue to deliver on its pledge to provide open access to its technology products and solutions."

Comments on HUD Proposal

While at the conference, the MBA also found time to comment on the U.S. Department of Housing and Urban Development's affordable housing goals for Fannie Mae and Freddie Mac. In its comment letter, MBA stated it supports housing goal levels that are consistent with the statutory mandate to "lead the industry" in making mortgage credit available to both single and multifamily affordable loans.

Pertaining to multifamily, the MBA "believes that encouraging the GSEs to significantly increase their activity in the multifamily market could push out other sources of capital that cannot compete with the GSEs," it said in the letter. This, they said, would not be consistent with their mission to respond appropriately to the private capital market.

The MBA also said that by limiting the number of multifamily units that can be counted as low or moderate income or special affordable housing without placing a percentage limit on multifamily would "limit the ability of the GSEs to meet their goal through primarily multifamily and would place less pressure on the GSEs to dominate the multifamily market simply to achieve affordable housing goals." While they did not recommend specific caps, the MBA is willing to work with HUD to discuss them.

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