The Federal Housing Finance Agency (FHFA) has the expertise to set servicing, underwriting, and mortgage securitization standards that could lead to the development of a private-label MBS market, according to the GSE regulator.
FHFA acting director Edward DeMarco told a House panel Thursday that his agency could set the credit risk standards for private mortgages, allowing for efficient pricing for "deep pools of homogenous mortgages," as directed by a bill sponsored by Rep. Scott Garrett, R-N.J.
The Garret bill tasks FHFA with establishing the underwriting and servicing standards for a number of mortgage classifications with different credit risks.
When questioned about his agency's expertise to develop such standards, DeMarco noted that FHFA is "well along" in setting more consistent mortgage servicing guidelines for Fannie Mae and Freddie Mac, adding that “implementation has already begun.”
In addition, FHFA is working toward changing the GSEs' securitization process, giving investors detailed loan-level information on the underlying mortgages.
He noted the requirements of the Garret bill "fits" with the ongoing initiatives at the GSE regulatory agency.
The acting FHFA director also expressed optimism that a private label mortgage market could develop over time with the proper standards.
"If the market has certainty with the rules of the road, I believe the private market can step in and do a great portion of what is being done by Fannie and Freddie," DeMarco said.