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NAHB Proposes Plan to Overhaul Secondary Market

A prominent housing trade group joined a growing roster of policy makers by outlining ways to take the GSEs off federal conservatorship, reintroduce private mortgage-backed securities, and charge existing government entities with stewardship of the new system.

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The ""National Association of Home Builders"":http://www.nahb.org/default.aspx (NAHB) released a ""white paper"":http://www.nahb.org/fileUpload_details.aspx?contentTypeID=3&contentID=176670&subContentID=419653 Monday that calls on lawmakers to slowly transition a system dominated by ""Fannie Mae"":http://www.fanniemae.com/portal/index.html and ""Freddie Mac"":http://www.freddiemac.com/ to one that shares and balances responsibility.

What would the new secondary market look like? Think a patchwork of securitization processes, regulatory oversight, and reform measures, all shared by a handful of state and federal agencies, some existing, some new.

""Our plan seeks to overhaul the housing finance system to ensure that housing credit is available and affordable in the future and is delivered through a competitive, efficient, sound, safe and stable system,"" NAHB Chairman Barry Rutenberg said in a statement.

Under the NAHB proposal, lawmakers would rekindle a market for private mortgage-backed securities by guaranteeing securities instead of mortgages, setting up a phase-out period for Fannie Mae and Freddie Mac, and charging various entities, state and federal, with responsibility for the system.

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A private mechanism similar to the ""FDIC's"":http://www.fdic.gov/ self-funding Deposit Insurance Fund would backstop conventional mortgage-backed securities, with a policy in place that allows the federal government to step in only in catastrophic situations.

""The intent is for the government to be in a secondary position and to be the insurer of last resort in order to reduce the risk to taxpayers,"" Rutenberg added.

The 12 Federal Home Loan Banks could ideally serve as Housing Finance Entities (HFEs) able to buy and pool mortgage loans from originators into securities overseen by a new federal board, not unlike the one that directs the FDIC.

State housing finance agencies would need to step up and serve alongside the HFEs as guarantors of liquidity in the private market.

If taken as is, the proposal would leave intact existing agencies ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô the ""Department of Veterans Affairs"":http://www.va.gov/, ""Federal Housing Administration"":http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/fhahistory, ""Ginnie Mae"":http://www.ginniemae.gov/, and ""HUD"":http://portal.hud.gov/hudportal/HUD, among others ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô and preserve the role of longstanding products like the 30-year fixed-rate mortgage.

The NAHB also threw its weight behind more ""prudent"" underwriting standards, securities oversight, and appraisal reform, going so far as to touch the sticky issue of investor ratings by establishing a new investor-oriented ratings agency.

The proposal comes as a bevy of others arrive from lawmakers and policy makers to replace the overburdened GSEs with a new system of securitization measures.

Rep. ""Scott Garrett"":http://garrett.house.gov/ (R-New Jersey) and Sen. ""Bob Corker"":http://www.corker.senate.gov/public/ (R-Tennessee) introduced legislation in Congress last year to siphon Fannie and Freddie out of the secondary market.

The ""Federal Housing Finance Agency"":http://www.fhfa.gov/ (FHFA) notably released a proposal last month to overhaul the secondary market, also by transitioning it off of the GSEs and setting up new securitization programs over several years.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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