Small lenders, consumer groups offer GSE reform alternative

A group of small and midsize mortgage lenders and affordable housing advocates called Wednesday for an end to the nine-year conservatorship of Fannie Mae and Freddie Mac, offering an alternative approach on housing finance reform.

The Main Street GSE Reform Coalition, made up of five disparate trade groups, outlined broad principles to counter a Senate plan that would eliminate Fannie and Freddie and replace them with private entities that would be given an explicit government guarantee in securitizing mortgages.

The group stopped short of calling for Fannie and Freddie to be restructured as utilities. Instead, the coalition offered three principles: creating a capital buffer for Fannie and Freddie, continuing with reforms by their regulator and ending the conservatorship that began in 2008.

"The primary objective of any GSE reform legislation should be to promote broad access to affordable, sustainable mortgage credit in all communities while minimizing risk to taxpayers," the Main Street coalition said in a press release. "Affordable housing advocates and small and mid-sized lenders alike share [these] principles — which are designed to increase competition, prevent financial concentration, and prevent artificial barriers to entry in the GSE loan origination market."

The group said Fannie and Freddie should begin rebuilding a capital buffer immediately, which could be done through a suspension of the dividend being paid on preferred stock held by the Treasury Department.

The coalition wants to "prohibit any form of vertical integration in which primary market participants are granted the right to charter new GSEs, or use their aggregator status to gain a competitive advantage in mortgage loan origination," it said.

Central to the group's goals is expanding access to all creditworthy borrowers and affordable housing through risk pooling and continued funding of the Housing Trust Fund and Capital Magnet Fund, among other issues.

The coalition, which formed in 2015, consists of the Community Home Lenders Association, Community Mortgage Lenders of America, Leadership Conference on Civil and Human Rights, Leading Builders of America, the NAACP and the National Community Reinvestment Coalition.

The Independent Community Bankers of America and the Center for Responsible Lending participate in the coalition but did not sign the statement of principles.