Ending the Conservatorship of Fannie Mae and Freddie Mac

Position

• ICBA does not support perpetual conservatorship or complete government ownership and control of the GSEs and urges FHFA and Treasury to finish the process to end the conservatorships in an orderly and transparent manner avoiding any disruption of the mortgage market.

• FHFA and Treasury must resolve Treasury’s ownership based on the Preferred Stock Purchase Agreements (PSPAs), permanently end the net worth sweep, allowing the GSEs to access the capital markets to raise outside equity to help them to fully recapitalize.

• ICBA supports FHFA’s robust and reasonable GSE capital framework, strong oversight, and supervision of the GSEs.

• ICBA supports both administrative and, if needed, legislative actions to preserve market liquidity, protect taxpayers, encourage the return of private capital to housing finance, and ensure a stable national mortgage market for all stakeholders.

• Community banks must be able to sell loans on a single loan basis for cash.

• The GSEs must maintain their specific duty to serve all markets, including small towns and rural areas. Appraisal and underwriting guidelines must be flexible enough to accommodate the unique characteristics of these markets.

• The FHFA Director serves at the pleasure of the President, resulting in significant shifts in policy and supervision as well as outsized political influence as Administrations change. Single-director governance of the FHFA should be replaced with a five-member commission to bring a diversity of views and create a system of checks and balances that would strengthen rulemaking and regulatory consistency.

Background

Community banks represent approximately 20 percent of the mortgage market, and secondary market sales are a significant line of business for many community banks. While many community banks choose to hold most of their mortgage loans in portfolio, robust secondary market access remains critical for them to support mortgage lending demand.

The current GSE secondary mortgage market structure has worked well for community banks by providing equitable access, not competing at the retail level, and permitting community banks to retain mortgage servicing rights on the loans they sell. However, the 16-year conservatorship of the GSEs has effectively nationalized the GSEs with the FHFA Director effectively running both companies. This creates a situation where the GSEs are subjected to undo political influence and may undertake initiatives that divert resources away from their primary mission to satisfy a political goal.