By Mike Colpitts
The president of the nation’s largest mortgage trade group is urging a change in the bonds that are sold to secure home mortgages.
David Stevens outlined a new system to inject private capital into the nation’s mortgage market at the Mortgage Bankers Association conference in New York Monday, suggesting that the bonds sold to secure mortgages by Freddie Mac and Fannie Mae transition to a single security.
“The key to a stable, successful, economically sound real estate finance system is liquidity,” Stevens said at the MBA National Secondary Market Conference & Expo. “Sufficient amounts of private capital will provide the liquidity in the market so families can get the loan they need in order to achieve homeownership.”
The MBA proposal calls for the government’s giant mortgage lenders to transition to a single pooled security, which could provide the funding for mortgages to be more easily re-sold to investors.
“If the industry embraces a fungible mortgage-backed securities market, everyone involved will benefit,” Stevens said. “There will be more liquidity because the combination of Freddie Mac and Fannie Mae currency brings greater volume in any coupon. We all know that large, liquid pools create better trading value.”
The change could provide greater liquidity to the market. Freddie bonds trade at lower rates than Fannie. About $200-billion in Fannie Mae mortgage securities are traded on an average day on Wall Street, while only $10-billion in Freddie Mac bonds are usually sold.
The change could have the capability of producing a larger pool of funding for the U.S. mortgage market to provide more financing for the residential mortgage market. Stevens said the step is necessary to prepare the industry for the inevitable rise in mortgage rates.
“Quite frankly, it doesn’t just save money. It helps to transition the market to a new paradigm by providing a more flexible and efficient way of trading securities,” said Stevens. “This action doesn’t require legislation. We can do this right now to the benefit of taxpayers, homeowners, the mortgage market system and the economy.”