MBA Sounds Battle Cry For Independent Mortgage Banks

By: Jann Swanson •

David H. Stevens, president & CEO of the Mortgage Bankers Association (MBA), said today that independently owned and operated mortgage bankers are the building blocks of MBA membership.  Stevens, speaking to MBA's second annual Independent Mortgage Bankers (IMB) Conference, said that nearly 55 percent of the association's regular residential membership is comprised of independent mortgage banks and the strong growth of community lenders "provides our industry and our organization the opportunity to expand...to thrive...to survive." 

MBA is the only trade association representing the full spectrum of companies who finance housing in the U.S., Stevens said, and it is working daily to ensure a business and regulatory atmosphere that allows independent mortgage bankers to make a profit and grow.

He spoke of some of the outreach MBA has done with IMB including hiring specialists in their area of concern and developing a presidential advisory group consisting entirely of IMBs.  These efforts have resulted in MBA hearing what members want such as testing of all loan officers under the SAFE Act regardless of company size or structure. That is now official MBA policy, he said, and MBA aggressively pushes it with the Consumer Financial Protection Bureau (CFPB) and other regulators.

"While you are on the front lines, working each day with your customers, the MBA is on the front lines in Washington fighting to protect your interests and the interests of your borrowers, Stevens said, "and together, we make a formidable team."

Stevens said there are challenges involved with representing a diverse membership; the members do not always agree so MBA strives to do what is right for the industry and for borrowers.  He pointed to the MBA's fight to obtain a safe harbor in qualified mortgage (QM) standards for smaller institutions when other trade associations were willing to settle for a rebuttable presumption standard.  "Folks said that we were tilting at windmills, but when you lean in hard, you can win.  And we did." 

On Servicing Compensation, MBA led efforts to block the GSEs and FHFA from changing the minimum servicing fee on GSE loans to protect IMB revenues and ownership of the servicing asset.  Again, this was an issue that would have dramatically impacted independent mortgage bankers, he said. "We fought it, we blocked it, and we remain vigilant should this issue re-emerge."

MBA is also fighting for uniformity in guarantee fees, based on loan quality and not size of the lender or volume of loans.  "Guarantee fee parity is vital to your business and to a healthy, competitive and transparent market, so we are fully engaged to make this a reality in today's market, as well as in any future secondary market reforms."  Stevens said MBA also led the fight to align the QM and QRM rules and it seems that that battle is also nearly won.

He has been asked many times why MBA continues its policy for transition and reform of Fannie Mae and Freddie Mac (the GSEs) when they are profitable and the marketplace is stabilizing rather than pushing to tweak the GSE charters and remove them from conservatorship.  We are not confident, he said, that this would create a really health market for IMB in the long run.  The GSEs are producing record profits with the highest credit quality loans in history but they continue to charge steep Loan Level Price Adjustments, Adverse Market Fees and Guarantee Fees that are three times what they were a decade ago.  "In the effort to both crowd in private capital and prove the ability to produce profits, this all has to be balanced by the impact to the purchase market and costs to consumers.

The GSEs have produced high revenues from the HARP refinance program but the low down payment purchase market has shifted broadly to programs within the GNMA security. As the Federal Reserve stated in its recently released HMDA report:  There has been "...almost no risk-taking in the [conventional] mortgage market in the aftermath of the financial crisis."

Stevens said there are other issues that remain to be addressed as the industry considers the future.  For example,

  • Despite repeated calls by MBA for the Federal Housing Finance Agency (FHFA) to move toward a system where fees are based on loan level risks, and not the size or volume of loans sold to the GSEs guarantee-fee parity is still not a reality,
  • Underwriting and pricing transparency are not clear and because of their impact in a QM world, opening the black box credit rules is necessary to evaluate and identify opportunities where credit might be needlessly denied.
  • The decision to sell to the cash window or issue MBS should be a lenders based on best execution, not a judgment made for them unless there are clear, transparent, counter-party standards that might be cause to force a cash only path.

Stevens said that the GSEs are a critical component of the housing finance system but it is equally clear that that structure that led to their demise and conservatorship present opportunities to improve the system and create a more competitive and stable secondary market for IMB.  Winding down the GSEs does not mean creating an entirely new system while completely discarding the old.  We need to fix what was fundamentally broken, and keep what works.  A successful secondary mortgage market must produce a more stable and competitive system for ALL lenders, all institutions, regardless of shape or size. And, to avoid market disruption, any new proposal must be carefully phased in.

Stevens said he had been an independent mortgage banker and had worked at a GSE so he knew about the competitive inequity created by uneven pricing and credit policies and he witnessed firsthand the flawed incentive structures that drove GSEs toward market share competition that ultimately hurt community-based lenders. 

He pointed to one example, risk share which, with its current back-end structure only benefits the GSEs.  "Risk sharing options should be made available to lenders at the "point of sale," with offsetting g-fee reductions rather than only at the back end when loans are already on the GSEs' balance sheets.  This is a centerpiece of MBA's GSE transition plan."

The future secondary market system should ensure transparent pricing and access for lenders of all sizes.  Some examples of what the new model should deliver include the following functions:

  • Cash Window and Whole Loan Execution;
  • Multi-Lender Security Execution;
  • Single-Loan Securitization;
  • Servicing Retained Sales; and
  • Servicing Released Sales.

Stevens said that Washington is full of voices but not everyone has a seat at the table.  His organization, he said, has worked diligently and has a sound analysis and a unique understanding of the policy and politics to secure that seat at the table.  "Together, with your expertise, our access in Washington and our collective resources, MBA has the credibility and the talent to be a change agent."  

MBA intends to work on a number of fronts to promote a housing finance system in which the independent mortgage banker can thrive.  Key priorities in 2014 include:

  • Ensuring any final GSE reforms provide equal and competitive access for all lenders and existing practices are more responsive to small lenders;
  • Working to create a clear set of representations and warranties that protect lenders from repurchasing loans with a minor and non-material defect;
  • Protecting the FHA program from overreaching reforms that could undermine its historical mission;
  • Executing on SAFE Act reforms that will allow lenders to compete for talented loan officers and ensure consumers, no matter where they shop for mortgages, their loan officer has been properly educated and tested.

The industry must stay together, Stevens concluded.  It must "speak as one - with one loud voice advocating for the American dream."