WASHINGTON, DC – December 8, 2011 – (RealEstateRama) — Rep. Scott Garrett (R-NJ), Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, delivered the following opening statement today at a hearing to review legislation to reform the secondary mortgage market:
“Today, the subcommittee is holding a second legislative hearing on the Private Mortgage Market Investment Act. This subcommittee held a hearing on the bill on November 3rd. Since then, I have been actively reaching out to and working with regulators, market participants, and other members on this committee to make improvements to the bill. I understand this is a complex issue and I welcome another opportunity to hear from the public on the merits of the bill.
“Currently, the federal government is guaranteeing or insuring over 90% of the U.S. mortgage market. Everyone on both sides of the aisle and all market participants claim that they support efforts to bring additional private capital back into the secondary mortgage market.
“There are two things that must be done to have private capital begin to re-enter this space. First, we must begin to roll back the government’s involvement in the housing market. Second, we must take actions to facilitate increased investor interest in the secondary mortgage market. By facilitating continued standardization and uniformity within the market, increasing transparency and disclosure, and providing legal certainty through a clear rule of law, there will be robust investor participation in the housing market without exposing the American taxpayers to trillions of additional dollars of risk.
“The legislation we are discussing today essentially sets up a new qualified securitization market. The FHFA is tasked with establishing a number of categories of mortgages using traditional underwriting standards that have different levels of credit risk associated with each category. Also, FHFA is responsible for creating standardized securitization agreements for this market. These securitization agreements will standardize servicing contracts, modification processes and representation and warranties that provide the investor the ability to put-back non-qualifying loans.
“The legislation also removes one of the biggest regulatory impediments to private capital re-emerging by striking the risk-retention provision from the Dodd-Frank Act. While I agree that risk-retention has benefits, the way it is currently being implemented will create a multitude of negative unintended consequences.
“To bring private investment back to our mortgage market, it is essential that the rule of law is clear, specific, and upheld. Investors’ rights and contracts must be honored. By facilitating the adjudication of disagreements between investors and issuers, clarifying the rules around the rights of 1st lien holders, and preventing government-forced loan modifications that negatively impair investor returns, investors will finally have the certainty they need to re-enter and invest in our nations’ housing market.
“In regards to additional transparency and disclosure, investors should be empowered and enabled to do their own analysis of the assets underlying the securities that they invest in. By disclosing more detailed loan level data while protecting borrowers’ privacy and by allowing more time for investors to study the additional information, investors will be able to conduct more due diligence and lessen their reliance on the rating agencies.
“I look forward to hearing the testimony of our panel and engaging in a very productive debate with other members about a private market solution that addresses one of the most important problems our economy faces today.”