The American public is served by a unique system of mortgage finance. This system results from a multifaceted Federal housing credit policy that teams Federal agencies and government sponsored enterprises with mortgage lenders, other insurers, conduits and investors in the mortgage market delivery system.

To advance the nation’s housing goals, Congress created the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (together the Government Sponsored Enterprises, or GSEs), along with the Federal Housing Administration and the Government National Mortgage Association, both parts of the U.S. Department of Housing and Urban Development (HUD); the Department of Veterans Affairs; the Rural Housing Service Administration; and the Federal Home Loan Bank System to fulfill specific objectives.

The MBA supports the vital role the GSEs play in maintaining and improving liquidity and stability in the secondary mortgage market. These secondary market enterprises generally, and their affordable housing activities in particular, are a significant part of America’s housing and housing finance system.

MBA believes, however, that it is essential that the GSEs focus on the missions prescribed in their charters and that the clear distinction between primary and secondary market activities be reaffirmed. MBA is dedicated to preserving the primary market as the domain of a robust and competitive private sector, an essential factor in lowering the cost of homeownership.

The charters of Fannie Mae and Freddie Mac, as amended by the Federal Housing Enterprise Safety and Soundness Act of 1992, specify four broad purposes for the GSEs:

• to provide stability in the secondary market for residential mortgages;

• to respond appropriately to the private capital market;

• to provide ongoing assistance to the secondary market for residential mortgages (including activities relating to mortgages on housing for low-and moderate-income families involving a reasonable economic return that may be less than the return earned on other investments) by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing;

• to promote access to mortgage credit throughout the Nation by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing.

The MBA acknowledges and supports the vitally important contribution the GSEs make in maintaining and improving liquidity and stability in the secondary mortgage market, including the role they play with their lender partners in achieving the affordable housing goals set forth by the U.S. Department of Housing and Urban Development.

To achieve the purposes outlined in their Charters, the GSEs have received from Congress significant special legal and financial advantages not available to other mortgage market participants.

These special advantages include:

• The GSEs are exempt from all State and local taxes except real property taxes.

• The GSEs may conduct business in any state or territory without the need to comply with any filing, licensing, or other business laws.

• The GSEs’ securities enjoy the status of "Government Securities" and are, thereby, exempt from the registration, reporting requirements, and fees of the U.S. Securities and Exchange Commission and the States.

• The Secretary of the Treasury is authorized at the Secretary’s discretion to provide direct government loans to each GSE of up to $2.25 billion.

• Debt Securities and mortgage-backed securities issued by the GSEs receive almost the same preferential investment status as Treasury debt. They can be used in many ways in lieu of U.S. Government Securities, for example as eligible collateral for advances from the Federal Reserve Banks for Federal Reserve open-market purchases and for collateralizing public deposits, in addition to being eligible for unlimited investment by federally supervised financial institutions.

• GSE securities are traded through the Fedwire system.

• The GSEs’ debt securities and MBS receive more favorable risk weights than other mortgage loan assets for the purpose of calculating risk-based capital requirements for supervised depository institutions.

While there is no direct government guaranty of debt issued by the GSEs, investors in the capital markets assume an implicit guaranty, which provides Freddie Mac and Fannie Mae with the ability to borrow at advantaged rates.

The structure of Fannie Mae and Freddie Mac combines the advantages of Government Sponsorship status with the functional organization of a shareholder-owned Corporation. This structure, without effective independent oversight over their activities and the use of their special advantages, could lead to a conflict between the public purpose goals of the GSEs and their private sector goals of maximizing return to their shareholders.

MBA believes the special advantages that the GSEs receive should not be used to compete in the primary market or to expand into markets currently well served by others. Rather, they should be focused exclusively on maintaining liquidity and stability in the secondary mortgage market, as provided for in their charters, and on achieving their affordable housing goals.

MBA believes that any policy debate on the activities of the GSEs should be focused on the distinct roles of public and private sector entities. We should not focus on the GSEs’ role in isolation, but must also consider the capacity of private markets to meet housing needs. Therefore, it is critical to MBA that there be a clear separation between the roles of mortgage lenders and the GSEs.

BA supports prohibition against participation by the GSEs in any primary mortgage market activities, including the current statutory prohibitions against the GSEs’ providing or engaging in direct lending to borrowers. Mortgage lenders should continue to originate and service mortgage loans, maintaining the market contact with their customers and vendors, including but not limited to consumers, owners/developers of housing, brokers and other real estate professionals.

The GSEs should introduce new products and services only when they directly relate to their core functions of providing liquidity and stability in the secondary mortgage market, including activities relating to mortgages on housing for low and moderate income families.

The size, risk position and financial impact of Fannie Mae and Freddie Mac have grown enormously since their inception. MBA believes that the need for regulation of their activities has increased in direct relation to this growth. Focal areas of regulation should include: their financial safety and soundness, the appropriateness of their activities in relation to their charter, their performance under their specific housing goals, and their effectiveness in fulfilling their mission.

Regulation of the GSEs must be independent and well funded. It must be carried out by entity(s) with the resources and expertise to evaluate the GSEs’ performance both as financial institutions and as public purpose entities. The regulator(s) must have the capacity to enforce their findings. Costs of this regulation should be fully funded by the GSEs.

In the ongoing review of their activities, particular attention must be paid to the issues of: 1) whether the activities of the GSEs

have the effect of displacing or discouraging activities of private market entities that do not enjoy the special advantages that have been conferred upon the GSEs; and 2) whether their activities are consistent with the specific mandate of providing stability and liquidity in the secondary market for residential mortgages.

Fees and charges collected by the GSEs from seller/servicers, including guaranty fees, are generally passed on to borrowers. Therefore, guaranty fees and other charges should be set at levels appropriate to protect the GSEs against the risks posed by the types of mortgages purchased, as well as guarantees and services provided, and to provide reasonable returns to shareholders in the context of their public mission.

In virtually every sector of our economy, technology has been a powerful and positive force for improving productivity, efficiency and accuracy in processing large amounts of information. In the housing finance market, the application of technology by a wide range of public and private sector participants has been a driving force in increasing opportunities for homeownership. To further expand these opportunities, the MBA supports the existence and development of an open, competitive marketplace for technology in order to achieve greater efficiencies and competition to benefit the entire marketplace.

MBA believes that to promote liquidity and efficiency in the mortgage markets:

• Any underwriting technology used by the GSEs should be transparent so the lending criteria of the GSEs are understood by their Seller/Servicers

• Aggregate and loan level performance data collected by the GSEs should be made available to their Seller/Servicers

To be consistent with their mission, the GSEs should not develop, distribute, or use technology in a way that:

• Bypasses their Seller/Servicers by going direct to the customers or vendors of those partners, including but not limited to consumers, owners/developers of housing, brokers, and other real estate professionals.

• Displaces or discourages innovation and development of competing systems by private enterprises.

• Limits access to their programs or is a precondition for waivers of representations and warranties or waivers of program and documentation requirements.

MBA opposes the imposition on the GSEs of user fees that will increase the cost of housing in the primary mortgage market.

MBA supports expanded liquidity for the residential mortgage markets by achieving the lowest possible risk-based capital standards for the GSEs and other federally-regulated financial institutions consistent with safety and soundness for participating institutions, stability for the overall market, and minimum exposure to the American taxpayers.

MBA believes that the Affordable Housing Goals should be set at the numeric levels proposed by HUD. MBA believes that the definition of what counts toward the goals is an important aspect of the regulations which needs ongoing review. MBA believes that the continuation of a sub-goal for multifamily housing is appropriate and essential to assuring the GSEs’ continued involvement in this market.