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Risks of Ending GSE Conservatorships

Issue

Securitization and Housing Finance→

Summary

SIFMA provided comments to the Treasury regarding its active engagement on GSE and housing finance issues. We support many aspects of the Treasury’s 2019 Housing Reform Plan. Most significantly, we agree that “existing Government support should…be made clearer and better tailored. The PSPA commitment should be replaced with an explicit, paid-for guarantee backed by the full faith and credit of the Federal Government.” We believe finality and certainty are the central goal of any housing finance reform effort, and this cannot be achieved without clarity on the level of federal support for mortgage markets.

We write to reiterate and emphasize some concerns regarding the conservatorships of the GSEs that we expressed to you, and other members of the Administration, last year. Our members are concerned that changes to the status of the GSEs are being contemplated without the benefit of an open and transparent market discussion, risking harm to the TBA market which is the most important vehicle for financing mortgage lending.

PDF

Submitted To

Treasury

Submitted By

SIFMA

Related Committee(s)

  • Securitization Committee

Date

30

November

2020

Excerpt

The Honorable Steven Mnuchin
Secretary
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

Dear Secretary Mnuchin,

We have appreciated the Treasury’s active engagement on GSE and housing finance issues and we support many aspects of the Treasury’s 2019 Housing Reform Plan. Most significantly, we agree that “existing Government support should…be made clearer and better tailored. The PSPA commitment should be replaced with an explicit, paid-for guarantee backed by the full faith and credit of the Federal Government.”1 We believe finality and certainty are the central goal of any housing finance reform effort, and this cannot be achieved without clarity on the level of federal support for mortgage markets.

We write to reiterate and emphasize some concerns regarding the conservatorships of the GSEs that we expressed to you, and other members of the Administration, last year. 2 Our members are concerned that changes to the status of the GSEs are being contemplated without the benefit of an open and transparent market discussion, risking harm to the TBA market which is the most important vehicle for financing mortgage lending.

As you know, SIFMA’s primary focus in housing finance reform is that the TBA market, which has so ably served mortgage borrowers, lenders, investors, and the economy for the last 40 years, remains a liquid and effective mechanism to transfer risk and fund mortgage lending. The TBA market facilitates risk management for originators, rate locks and an affordable national mortgage market for borrowers, and investment opportunities for a vast number of mutual fund, pension fund, and other global investors. The TBA market is the crown jewel of the U.S. mortgage finance system.

While 2020 has been a difficult year throughout the economy, the resilience of the housing markets and financial system, including the TBA market, has been a bright spot. In 2020, mortgage markets have seen extremely high volumes and activity in the TBA market has risen apace – from a daily trading average of $228BN/day in 2019 to $270BN/day year to date in 2020.3 In light of the challenges facing the economy in coming years, we strongly believe that a diminution of the TBA market would represent a major step backward for a sector that has served as a key supporter of our economy.

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