AMI and Mortgage Investors Argue that Private Capital Is Willing to Step Into Mortgages, contrary to some
For immediate release
Tuesday, May 10, 2016
Washington, D.C. – The Association of Mortgage Investors (AMI) released the following statement in response to a public official’s recent comments that “[p]rivate capital [is] unwilling to step into mortgages.”
“Private-label capital is a catalyst for the American Dream of home ownership, such as a more affordable and widely-available 30-year fixed mortgage,” said AMI executive Director, “We will continue to work with policy-makers on structures, systems, and policies that will bring capital to the U.S. mortgage market and increase access to mortgage credit for credit-worthy borrowers.”
Last week, a housing news source quoted a senior Fannie Mae official about the prospects around the return of the private-label mortgage-backed securitization market. Investors were disappointed by his reaction characterizing that such a return is “impractical” in his eyes. “I don’t foresee that market coming back,” stated Mayopoulos, “[t]hose investors got burned in a big way.” However, AMI members confirm that this was the reality in the pre-crisis market given the ineffectiveness and unenforceability of representations and warranties made to investors about mortgage loans they invested in, just as many consumers had no protections from the big bank-servicers on those same loans.
Private capital has the capacity to lend to borrowers outside of the Government Sponsored Enterprise credit box. This is important because these are the exact borrowers that have few other mortgage options. This pool of borrowers includes those who may have undergone financial stress during the crisis, but now are back on their feet and have the ability to repay. Private capital also has the ability to tailor mortgage criteria and loan terms to better fit borrowers, while GSE terms remain more rigid.
AMI acknowledges that new standards are necessary for a revived PLS market. Investors are ready and willing to return to take credit risk. The small PLS market size is not due to a lack of investor demand. In fact, there is significant private capital ready and available to invest in mortgage credit risk, but this private capital is substantially crowded out by the GSEs. Many of the largest investors are still at bay because private label securitization is a small, relatively illiquid market. Right-sizing the GSE footprint would allow for a larger, deeper, and more liquid private label market. This would have the advantage of helping to shift credit risk away from the government and taxpayers to the degree they continue to backstop the GSEs.
AMI published a White Paper on restarting the PLS market that can be found on our website. Further, AMI has testified before Congress about many market defects that existed leading up to the crisis, including market opacity, an asymmetry of information between investors and originators or, it can be said, a thorough lack of transparency. Moreover these market defects are:
- Poor underwriting standards;
- A lack of standardization and uniformity concerning the transaction documents;
- Numerous conflicts-of-interest among servicers and their affiliates;
- Antiquated, defective, and improper mortgage servicing practices;
- An absence of effective legal remedies to investors for violations of RMBS contractual obligations and other rights arising under state and federal law; and,
- Unwarranted federal and state government intervention in the mortgage market (e.g., the use of eminent domain as a foreclosure mitigation tool).
AMI remains ready and willing to work with policy-makers and our public institution partners to further develop and institutionalize standards that provide certainty to mortgage investors that their interests will be protected and contracts will be honored. This will help to expand investor demand for mortgage credit and reduce unnecessary risks, helping to provide creditworthy borrowers greater access to affordable housing finance.
AMI continues to advocate on all of these matters, including three main public policy issues of pressing importance to mortgage investors and borrowers:
- GSE Reform and the Future of Fannie/Freddie.
The future of the enterprises is key to the dream of homeownership and the TBA market. As Congress, the Treasury Department and FHFA take action to ensure greater mortgage credit for U.S. borrowers with a minimum of federal support, private investors – in order to commit more capital to fund mortgages — need certainty that their legal rights will be respected. It is important that public and private activities are clearly delineated so that mortgage investors have certainty around long term investments and risks, e.g, honoring legal obligations to investors and a Trust Indenture Act-like statute applied to the PLS market.
- The Future of Securitization.
As other future of securitization efforts have stalled, it is necessary to develop the necessary standards, systems, and processes for RMBS to return. AMI works on convening experts as well as developing best practices and legislative reforms. Investors want to make ensure that policies maintain and ensure investor rights in the future.
- Servicer Issues.
Investors and borrowers have been harmed through servicer practices and policies which are inadequate for the modern environment. More work needs to be done on improper modifications, aggressive stop-advance policies, conflicts-of-interest, self-dealing, and the thorough lack of transparency in the PLS market.
AMI is proud to work with many other housing and consumer organizations on solutions toward a stronger, more vibrant, and more resilient U.S. mortgage market.
“Progress on these policy fronts is critical to restoring private capital to the U.S. mortgage finance system, and thus, increasing housing availability and affordability to Americans,” stated AMI Board President Vincent A. Fiorillo.
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The Association of Mortgage Investors represents private investors, public and private pension funds, and endowments, all of whom support the efforts of Congress and the Administration to help responsible, though distressed homeowners avoid foreclosure. For more information, please visit www.the-ami.org.
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 http://www.housingwire.com/blogs/1-rewired/post/36972-fannie-mae-ceo-private-capital-unwilling-to-step-into-mortgages?eid=311686021&bid=1396782 (quoting Fannie Mae CEO Timothy J. Mayopoulos).