The complexity of the secondary mortgage market was the focal point of a hearing held by the House Financial Services Committee’s Housing and Insurance Subcommittee on Feb. 11. The hearing featured testimony on the current securitization framework and ideas for preserving liquidity, competition and access to the 30-year fixed-rate mortgage.
The witness panel was comprised of Mortgage Bankers Association (MBA) President and CEO Bob Broeksmit, Consumer Federation of America (CFA) Director of Housing Dr. Sharon Cornelissen, Structured Finance Association CEO Micheal Bright and Norbert Michael, vice president and director of the CATO Institute’s Center for Monetary and Financial Alternatives.
Mortgage industry priorities
Describing the important role the secondary market fulfills as a source of liquidity for the “complex financial ecosystem,” with approximately $48 trillion in owner-occupied real estate value and about $14 trillion in mortgage debt outstanding, Broeksmit emphasized the importance of continuing to ensure the durability of the 30-year, fixed-rate mortgage through the federal government’s “implicit” and “explicit” support.
“A strong secondary mortgage market should ensure the fully private, non-agency market is as robust as possible,” Broeksmit said. “The disappearance of the private securitization market for single-family mortgages following the Great Financial Crisis did not immediately reverse its course as the housing market recovered. In the past two years, private-label securities (PLS) issuance has shown healthy increases, although it continues to represent only a small portion of secondary market activity.”
The key objectives MBA hopes to achieve through policy reforms include: the elimination of the Federal Housing Finance Agency’s (FHFA) tri-merge credit reporting requirement, allowing for a single-file framework in its place; responsibly reducing mortgage insurance premiums (MIPs) administered by the U.S. Department of Housing and Urban Development and the Federal Housing Administration (FHA); and coordinating reduced Loan Level Price Adjustments (LLPA) and eliminating LLPAs for rate/term refinances.
“A single-file framework promotes beneficial competition in the credit reporting space, encourages innovation, streamlines origination processes, and reduces borrower and lender costs that have seen dramatic increases in recent years,” Broeksmit asserted.
Regarding MBA’s stance on insurance premiums, he noted that FHA’s latest actuarial report on its single-family Mutual Mortgage Insurance Fund indicated a reserve ratio of nearly six times the statutory minimum at almost 11.5 percent.
In light of this, he argued the Trump administration “should consider lowering the annual single-family MIP – and/or eliminating the life-of-loan premium – to provide immediate financial relief to borrowers and expand access to homeownership. Importantly, any MIP cut should be carefully coordinated with program and underwriting adjustments to address risk-layering factors and mitigate rising delinquency rates.”
To emphasize his association’s position on LLPAs, Broeksmit said failing to make certain adjustments in tandem with lowering MIPs would only shift market share from the government-sponsored enterprises (GSEs) GSEs to the FHA.
“The GSEs should implement a simple, targeted approach by modestly lowering LLPAs across-the-grid for purchase loans and removing all LLPAs for rate/term refinances where the borrower has an existing GSE loan and a strong payment history (i.e., no late payments in the last 12 or 18 months),” he said.
Broeksmit cautioned that poorly coordinated pricing changes between Fannie Mae and Freddie Mac and federal housing regulators could have adverse consequences, such as a shift in risk between implicitly backed and explicitly guaranteed programs. He urged coordinated policy adjustments to avoid destabilizing shifts in market share or taxpayer exposure.
Broeksmit noted MBA’s support for the creation of the Uniform Mortgage-Backed Security (UMBS) to enable Freddie Mac to compete more effectively with other guarantors in the secondary market, whereas it previously had to discount its pricing to win business. He added that “the existence of the UMBS leaves open the possibility for any future guarantor (if authorized by the Congress) to enter the market with ready access to liquidity.”
Noting that it was not the intended focus of the hearing, Broeksmit reiterated MBA’s commitment to working with the Trump administration toward a reasonable path toward ending the conservatorship of Fannie Mae and Freddie Mac. MBA has convened a “convened a blue-ribbon task force of industry practitioners” to consider the complex issues surrounding the secondary market in an effort to help frame the practical implications of any material changes affecting the housing GSEs, he said.
Broeksmit urged lawmakers to work with regulators to adopt a holistic approach for enacting targeted policy reforms to avoid negative outcomes and to remove obstacles to reviving the PLS market to boost secondary market competition and reduce reliance on taxpayer support.
Broeksmit also briefly described MBA’s similar views regarding the role the GSEs play in helping to stabilize the multifamily mortgage market, which he described in more detail during a recent industry event.
Considerations for ending the GSE conservatorship
Bright agreed with Broeksmit on many points regarding the need to address policies constraining private capital flow into the secondary market, as well as MBA’s view that housing market reforms must be tackled holistically to avoid risks to market competition.
He said any release from conservatorship should therefore be paired with reduced loan limits on the mortgages the GSEs are permitted to guarantee, asserting that government-backed entities should not facilitate the financing of million-dollar homes that fall outside their affordable housing mission.
“In our view, as representatives of secondary mortgage market participants, clear legal certainty over the long-term fate and structure of the GSEs is vital,” Bright said. “Ambiguity regarding the government’s role, GSE business structures, or the regulatory treatment of their securities in a post-conservatorship environment could undermine the investor’s ability to accurately price risk. These dynamics – if they were to arise – have the potential to put upward pressure on mortgage rates.”
Post-conservatorship reform should also impose prudent limits on GSE activities to prevent “mission creep,” particularly in light of Freddie Mac’s 2024 effort to obtain approval to purchase second-lien home equity loans, a form of consumer credit secured by residential property, he also noted.
The impact of capitalization requirements
Broeksmit’s testimony included a large segment on bank capital regulation, arguing that excessive capital charges constrain liquidity to independent mortgage banks and can increase borrowing costs for consumers.
Specifically, he contended that Basel III Endgame proposals and existing capital treatment of mortgage loans have discouraged banks from holding mortgage servicing rights and participating in origination.
Broeksmit called for lawmakers to reduce the 250 percent risk weight requirement on mortgage servicing assets to no more than 100 percent. He also recommended raising the 25 percent cap on servicing assets included in common equity tier 1 capital to 50 percent and lowering the 100 percent risk weight on warehouse lines of credit.
“Banks operating under the Community Bank Leverage Ratio should be exempt from the cap entirely,” he said. “A stronger bank bid for MSAs (marketing service agreements) helps ensure a more orderly and liquid MSA market for all participants – both banks and nonbanks – and contributes to overall financial stability in the single-family mortgage market.”
Reduced housing goals
Cornelissen’s testimony focused on the CFA stance that multiple actions by the FHFA over the past year have reduced affordable mortgage access and concerns about its decision to lower its housing goals and scale back mission-oriented functions.
She asserted that the administration’s “ad hoc” policy changes and deep staff cuts have weakened the ability of the FHFA and the GSEs to fulfill their statutory affordability mandates, which could restrict credit to lower-income borrowers and underserved communities.
“FHFA, as well as Fannie Mae and Freddie Mac, have seen extensive staffing dismissals and reductions over the last year, especially in the very divisions most focused on making GSE-backed mortgages more available to working families and communities,” Cornelissen said. “For example, (FHFA) Director (Bill) Pulte placed FHFA’s fair lending and consumer protection teams on administrative leave, made widespread cuts in its research division, and fired most of the staff in its Office of Minority and Women Inclusion. Large cuts have also decimated the teams that drive the GSEs’ affordable mortgage business, oversee ethics compliance, and manage corporate risk stemming from natural disaster events. This loss of expertise and capacity has undermined the regulator’s – and the enterprises’ – ability to launch well-researched, innovative housing policies that could benefit consumers, monitor emerging risks in the market, and promote the enterprises’ affordability missions.”
She also described how the agency’s decision in December 2025 to “jump[] ahead of the three-year rulemaking cycle” and publish the 2026-2028 Enterprise Housing Goals steep reductions for low-income and very low income home purchase and refinance goals – well below expected (and historical) primary market delivery of these loans – will mean up to 177,000 families will be at risk of losing access to GSE-backed mortgages over the next three years.
Cornelissen cited data from the Urban Institute, showing that, in the first decade of their existence, affordable housing goals positively impacted mortgage access for lower- to moderate-income families (1993-2002) and lowered interest rates in markets where Fannie Mae and Freddie Mac had a significant presence. The Congressional Budget Office estimated that approximately 750,000 homebuyers in 2025 benefited from having a goal-eligible mortgage.
“Over the past year, ad-hoc and often informal announcements around the future of the secondary market have increased uncertainty for industry and investors, and further undermined access to affordable homeownership,” she said. “Policy ideas have often been announced suddenly, without data-driven analysis, opportunity for public input, or details about implementation.”
Michael presented a starkly different perspective.
He contended that the benefits of the housing goals program were used by the GSEs as a “weapon to secure its special government privileges” before describing the circumstances under which the GSEs ended up getting “bailed out” by the taxpayers by being put into conservatorship.
“Relying on investor guarantees, security standardization, government mandates, risk allocation by dictate, and strict regulation doubles down on the failed government policies that created the 2008 crash,” Michael said. “Unencumbered, markets function so that risk is allocated to those best able to handle it, and so that firms avoid restricting access to credit-worthy borrowers. Policymakers that push against these forces because their constituents do not want to hold risk and because they want to expand credit beyond existing levels, are directly responsible for (at the very least) the housing finance market turmoil realized during 2008 and the costs of the associated bailouts.”