Nov 5 - As Congress considers mortgage market reforms, the American Bankers Association has testified that equal access, equal pricing, multiple channels and reasonable capital requirements are necessary to ensure community banks have access to a federally guaranteed secondary market.
ABA Chairman Jeff Plagge testified before the Senate Banking, Housing and Urban Affairs Committee. Plagge is also president and CEO of Northwest Financial Corp. in Arnolds Park, Iowa.
In his testimony, Plagge commended the committee for its focus on mortgage lending issues, particularly the leadership of Senators Corker and Warner and the cosponsors of S. 1217, which would address the government’s role in the mortgage market and establishes a framework on which to build.
“I believe that a government guarantee for the whole mortgage industry is important, but it is particularly helpful to low and moderate income mortgage borrowers,” Plagge said. “That guarantee must be explicit, fully priced into the cost of each mortgage and, most importantly, available to all eligible primary market lenders, regardless of their size, charter type, geographic location or number of loans sold into the secondary market. If community banks’ access is curtailed or denied, or their pricing in the market is inequitable, they and the communities they serve will suffer.”
While federal government support is essential, Plagge testified that it should be within a mortgage market predominately filled by the private sector.
“Fostering a private market for the vast majority of housing finance must be part of any federal policy and should be balanced with government support for certain market segments,” Plagge said.
Plagge testified that ABA supports the potential creation of a mutual entity open to banks of all sizes and charter types, as well as a possible expansion of Federal Home Loan Bank activities as access points for the federal guarantee.
“A mutual organization may be promising, but must be economically viable and have the appropriate governance structure to assure fair and equitable access for all lenders — particularly community banks,” Plagge said.
A limited expansion of the role of the Federal Home Loan Banks may also be an option.
“It is possible that the FHLBs’ role as aggregators of loans originated by their members could be expanded, and it may be possible to authorize the FHLBs to issue securities as well,” Plagge said. “Whatever changes are made, Congress must not harm access to traditional advances, particularly for community banks.”
Plagge concluded his testimony by urging a deliberate and orderly approach to mortgage market reforms.
“Reforming the mortgage market will be a complex undertaking with far-reaching consequences for our economy,” Plagge said. “It must be undertaken in a thoughtful, orderly manner, and done with a careful transition over a number of years to ensure that the mortgage markets are not destabilized.”
For a copy of Plagge’s full testimony, click here.