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A government guarantee should be the central component of any new housing finance system to ensure all small financial institutions retain access to the secondary market, NAFCU's Carrie Hunt told the Federal Housing Finance Agency Monday.

Hunt, NAFCU's general counsel and vice president of regulatory affairs, was writing in response to an FHFA white paper released in October. The paper outlines the agency's plans for a new securitization platform for the secondary market and a contractual framework to support the new infrastructure. The FHFA also unveiled an updated strategic plan that contains four general goals: return the government-sponsored enterprises to a safe and sound status; preserve and conserve GSE assets; ensure housing finance stability, liquidity and access; and prepare for the future of housing finance.

Hunt reiterated NAFCU's view that any housing reform effort should ensure at least two entities remain to provide mortgage-backed securities with a government guarantee. The guarantee should support single- and multi-family mortgages that the GSEs have historically supported, Hunt said.

NAFCU does not support full privatization of the GSEs, Hunt added, because that would likely lead to "the exclusion, even if it occurs slowly and unintentionally, of small community-based financial institutions from the secondary market."

Hunt recommended that FHFA do the following:

• Emphasize mortgage loan quality over quantity with its new housing finance system. On this point, Hunt said a greater focus on quality "would offset disincentives to purchases mortgages from lenders with relatively lower volume."
• Provide more details about the government guarantee option included as part of the agency's credit enhancement functionality of its securitization platform proposal.
• Ensure industry participation in the reform effort. Hunt recommended that the FHFA consider forming a board of advisors of industry participants, with at least one advisor representing the credit union industry.
  

More:

• FHFA white paper, "Building A New Infrastructure for the Secondary Mortgage Market"
• FHFA strategic plan
• NAFCU comment letter