Rep. Scott Garrett (R-NJ), Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, today applauded passage of the Private Mortgage Market Investment Act by the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises. Unveiled by Garrett in October, the Private Mortgage Market Investment Act reforms the secondary mortgage market to ensure robust private investment in the U.S. mortgage market without a government guarantee.
"When the history books are written, today's vote will mark the beginning of the end for the era of crony capitalism that has defined our country's housing finance system for the past three decades," said Garrett after the vote. "Subcommittee passage of this bill is an important first step to level the playing field so that private market participants can reenter the marketplace and, more importantly, ensure the American taxpayers are never again left holding the bag for costly government bailouts. By facilitating continued standardization and uniformity, ensuring rule of law and legal certainty, and providing investors with additional transparency and disclosure, the Private Mortgage Market Investment Act will set the rules of the road so that a deep and liquid secondary mortgage market develops in the absence of Fannie Mae and Freddie Mac."
Garrett's proposal to reform the secondary mortgage market will do the following:
1. Facilitate Continued Standardization and Uniformity of Mortgage Securitization
Direct Federal Housing Finance Administration (FHFA) to create several categories of mortgages with uniform underwriting standards for each.
Direct FHFA to develop standard and uniform securitization agreements.
Develop clear, transparent representations and warranties coupled with an adequate repurchase program to ensure risk retention and skin in the game.
Streamline the process for securities that meet the standard underwriting characteristics and securitization agreements to be sold to investors.
Establish mandatory arbitration process to ensure underwriting and securitization standardization compliance.
Abolish risk-retention provisions included in Dodd-Frank.
2. Ensure Rule of Law and Legal Certainty
Remove conflicts of interest between servicers and investors.
Clarify the rules around the eligibility of obtaining second lien mortgages.
Prevent regulators from unilaterally forcing investors to reduce the principal of loans they have invested in.
Allow for the appointment of an independent third party to act for the benefit of investors in mortgage-backed securities.
Standardize servicer accounting and reporting for restructuring, modification or work-out of loans used as collateral.
3. Provide Additional Transparency and Disclosure
Increase the quality of the loan level information and the disclosures that investors can use to evaluate the value of the mortgages.
Ensure investors have sufficient time to review and analyze disclosed information before making investment decisions.
Increase pricing transparency by disclosing pricing history on securitization deals.
Require the creation of an individualized marker for each loan within a securitization.