CBAI Chairman Bill Wubben (Apple River State Bank), First Vice Chairman Todd Grayson (South Central Bank, N.A., Chicago), and Past Chairman and FHLB-Chicago Board member Roger Lehmann (The Harvard State Bank) attended a Housing Finance Roundtable with Illinois Senator Mark Kirk hosted by the Federal Home Loan Bank of Chicago. The Roundtable was held on August 7 in Chicago. CBAI urged the following principals be adhered to in the reform of the housing Government Sponsored Entities (GSEs):
1. There must be no further consolidation of the housing finance system that would result in several mega banks and financial firms dominating the market. A further consolidation would increase systemic risks, reduce competition, increase costs for consumers, reduce community bank participation in residential housing finance, and increase the likelihood of the consumer abuse that we saw during the recent mortgage meltdown and financial crisis.
2. There must be equal and direct access to the secondary market for community banks regardless of loan volume. Selling loans to the secondary market must remain a relatively simple process. Community banks should not be required to sell their mortgage loans through large banks or financial firms, or be required to securitize or provide other complex credit enhancements to their mortgages.
3. Community banks must retain the right to service the loans they originate. Mortgage servicing is important in the community bank business model and it is important for consumers to have local individuals to speak with in the event of questions or problems.
4. There must be no appropriation of consumer data by any intermediary for the purpose of cross selling financial products or services.
5. The government footprint in residential housing finance must be reduced and private capital must be encouraged to responsibly reenter this market. However, when the next crisis strikes, the government must remain involved in residential housing finance with catastrophic loss protection. During periods of extreme finance stress private capital exits the market and the government must be prepared to assist in maintaining liquidity and to prevent a housing market failure. The government guarantee must be explicit and it must be priced into the guarantee fee.
6. The Federal Home Loan Bank System must be preserved as an access point (but not the only one) to the secondary market for community bank residential mortgages.
CBAI thanks the FHLB-Chicago for providing this forum for the discussion of the challenges and opportunities in the reform of the housing GSEs.