MBA Proposal Makes No Progress
On September 2 the MBA released "MBA's Recommendations For The Future Government Role, In The Core Secondary Market". After reading this short 12-page report I found myself wondering if the MBA is taking the right approach.
The first sentence of the report reads, "The importance of housing...warrants a federal Government role..." I can't help but wonder if they are looking for a solution based on an incorrect premise!
I'm not suggesting that the Government should be excluded from any solution...clearly it serves a purpose. The GSE's absolutely did their job of creating liquidity for the mortgage industry. Where they failed, (by not adequately creating stability), was when their role in buying and owning securities became too large.
But to begin the restructuring process by relying on the creation of a new (albeit the same) type of Government sponsored entity seems idiotic (Remember the phrase...Do what you've always done and you'll get what you always got!).
The proposed Mortgage Credit-Guarantor Entities (MCGE) simply get back to the basics of what the GSE's originally did...which was limit their activity to conforming loan products. It seems that part of the premise behind the MCGE's is to create many such entities so that no single entity ever becomes "Too big to fail". It also precludes the MCGE's from maintaining a GSE-like investment portfolio.
Upon further scrutiny I find it irresponsible that of the eleven "Principles For Ensuring Mortgage Stability" offered in an MBA report earlier this year, NONE of the Principles focues attention on protecting the REAL customer...the CONSUMER! Were it not for the homebuyer there would be no mortgage backed asset and no secondary market!
The creation of a "new" Government sponsored entity, to provide a blanket of insurance against losses, only fosters the continued expectation that the Government is some how going to always bail us out in situations of "extreme distress" (words used by the MBA). If we position the market to expect "protection" any economic downturn will be interpreted as "extreme distress".
Free markets function fine...when all parties understand their risks. Changes need to be made to the GSE's but not in a way that contracts, rather than expands, homeownership. Of the eleven Principles offered by the MBA only four focus on how the secondary market can improve the standards and transparency of mortgage backed assets. The rest focus on the role of the Government.
Clearly the Government, (meaning our legislatures...i.e. Barney Frank et. al.), failed us (again) so why would seven of the eleven principles being offered by the MBA to fix the problem involve going to the Government for help?