There appears to be a concerted, well-funded campaign out there spreading the myth that Congressional GSE reform is bad for small lenders. As a small-to-midsize lender myself, I promise you that getting Fannie Mae and Freddie Mac out of conservatorship and locking in the field-leveling changes that the GSEs have been forced to make by their conservator, is critical to the future of my company.
In fact, I will go so far as to say that the single biggest risk to small lenders like myself is that Congress doesn’t act and the GSEs are allowed to recapitalize and are released from conservatorship without first being reformed.
It’s important to remember that most of the gains that have been made for small lenders – leveling guarantee fees, preventing special deals for specific lenders, the creation of the single security – have been secured administratively by the Federal Housing Finance Agency and its Director Mel Watt and former Director Ed DeMarco in their role as conservator of the GSEs.
The problem comes in two forms. First, FHFA has additional powers as conservator that it wouldn’t have if the companies are released from conservatorship and FHFA becomes just the regulator. It was this expanded authority that FHFA used to force changes on the GSEs that got us to the point we are today where we have the same access to the GSEs as the larger financial institutions.
Second, there is no guarantee that the next FHFA director will make equal access for small lenders the same priority as Mel Watt has. Director Watt’s term is up in 18 months. Who knows who the next director will be and what his or her goals will be, but they may not be as interested in requiring the GSEs to serve the market in a fair, transparent and nondiscriminatory manner.
I don’t see that going well for me and my company. That is where the big banks will have the opportunity to dominate the market, because many of them have the infrastructure and capability to run their own securitization businesses. Then I will be beholden to them in order to sell my loans into the secondary market.
This is why congressional reform is necessary. Only Congress can lock in statute the positive changes that have occurred over the past five years. Only Congress can create a new, utility-style regulatory compact that mandates that the GSEs’ successor entities give small lenders equal access, and prevents a return to the days of volume-base discounts and credit waivers.
I understand the fear of change, the attitude that things are good now, why upset the applecart. But I have a longer memory. I remember how the GSEs operated, how they chased market share by giving sweetheart deals to certain lenders, giving those lenders a huge advantage over my company so I couldn’t compete. I fear that unless Congress acts on reform, those days could return.