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ABA: Bill Takes First Step Toward Limiting Government’s Role in Mortgage Market


July 24 - The American Bankers Association has testified that the recently introduced Housing Finance Reform and Taxpayer Protection Act (S. 1217) is a positive first step toward creating a sustainable, rational and limited role for the federal government in supporting and regulating a healthy mortgage market predominated by the private sector.

Michael Middleton, CEO of the Community Bank of Tri-County in Waldorf, Md., testified on behalf of ABA before the Senate Banking, Housing and Urban Affairs Subcommittee on Securities, Insurance and Investment.

In his testimony, Middleton commended Senators Corker, Warner, Tester, Johanns, Hagan, Heitkamp, Heller, Kirk and Moran for introducing S. 1217, which would address the government’s role in the mortgage market and resolve the longstanding conservatorship of Fannie Mae and Freddie Mac. 

“The bill follows principles long advocated by ABA,” Middleton said. “It provides a set of incentives to shrink the government’s involvement in the mortgage market to an appropriate and sustainable level, while establishing the structure for a liquid, private market. The government’s role should be limited to well-targeted borrowers and covered loans, and ensuring stability and accessibility of capital markets in the event of a market failure.”

Middleton testified that ABA has long advocated a limited government role in housing finance. 

“ABA believes that the role of the government in housing finance should be dramatically reduced from its current level, and a private market for the vast majority of housing finance should be fostered,” Middleton said. “The approach taken properly realigns a significant portion of the residential mortgage process so that it is conducted by the private sector.”

In order for the bill to accomplish its goal of a more limited government role while also ensuring mortgage markets continue to function properly, Middleton testified that a number of outstanding issues must be addressed. These include more clearly refining the capitalization requirement for entities taking up the role of securitization from the GSEs, as well as removing from the proposed Federal Mortgage Insurance Corporation its role as regulator for the Federal Home Loan Banks.

“There are areas where the bill can do more, particularly in addressing the role of government in the multifamily housing finance market,” Middleton said. “We would also note that to fully protect taxpayers from additional losses like those suffered by Fannie Mae and Freddie Mac during the financial crisis, we must impose similar reforms on the Farm Credit System, which continues to follow the discredited model of privatized gains and public losses that failed so badly in the housing sector.  Without similar reforms, it is only a matter of time until taxpayers again are put at risk.”

Middleton concluded his testimony by noting that the mortgage market’s importance to the economy calls for a deliberate approach to reforms.

“Addressing the many concerns and interests of a wide range of participants will require much negotiation, compromise and cooperation,” he said. “There is much work yet to be done, but this bill is a good foundation on which to begin the process.”