How To Entice Private Sector Into Secondary Mortgage Market
Reforming Fannie And Freddie…
The secondary mortgage market is the market for the sale of securities or bonds collateralized by the value of mortgage loans
Enticing the private sector into the secondary mortgage market is the cornerstone of most proposals for reducing or reforming Fannie and Freddie’s (hence government and tax payers) roles in housing finance. Getting the private sector in will require making the industry infrastructure more transparent, eliminating conflicts of interest and standardizing platforms and legal agreements. These are all things which, by all accounts should have been done long ago, but over the years the housing finance industry changed and no one paid heed. FHFA has already created a third party entity and is building this new and improved platform. Already the loan officers who once steered folks into certain loans based on the profit the loan officers would earn, not on what was best for their borrowers are bound by new and improved loan officer compensation rules (already being enforced by the CFPB). And already the banks that turned around an sold those loans, misrepresenting them to investors, such as Countrywide, Ameriquest and WaMu, as history.
By fixing these flaws, we are eliminating much of the risk in the secondary market and bringing it up to par with the modern world. Assuming a platform can be created for the private sector to feel more confident in, arguably the same new platform will already have eliminated much of the taxpayer risk GSE opponents site as reasons to eliminate Fannie and Freddie. And it would be naïve to believe we can rely on private players who, by definition are obligated to pursue high profits for their investors, to be driven by anything other than profit. Safe vanilla 30 year fixed rate loans which until recently were the corner stone of America’s housing finance, eventually ain’t gonna cut it for private investors. Especially as rates rise.