As part of an effort to provoke competition in a market dominated by mortgage giants Fannie Mae and Freddie Mac, regulators proposed easing a hurdle for banks to sell pools of home-mortgage obligations. The Federal Deposit Insurance Corporation, or FDIC, released a plan that would ease disclosure requirements passed in the wake of the 2008 financial crisis. The requirements discourage banks from packaging and reselling mortgage-backed securities, which represent a nearly $10 trillion pool of assets in the national housing market.
“The proposal we are considering today would remove one potential obstacle that banks face in providing mortgage credit to homeowners,” FDIC Chairman Jelena McWilliams said. “With respect to any concerns that this could lead to a repeat of practices that contributed to the financial crisis, regulatory requirements are dramatically different today.”
The proposal would allow banks issuing mortgage-backed securities to avoid detailed disclosures. The FDIC said banks struggle to follow federal regulatory mandates, as much of the required information “is not readily available to them.”
The three government-sponsored enterprises that guarantee mortgages – Fannie Mae, Freddie Mac, and Ginnie Mae – accounted for $8.44 trillion of the $9.82 trillion in outstanding mortgage-related securities through the first quarter of 2019. The FDIC’s plan could push private banks into action, packaging and reselling residential mortgage-backed securities in a market dominated by government-backed firms.
FDIC board member Martin Gruenberg expressed opposition to the agency’s proposal. The current rules, he told The Wall Street Journal, are “a key measure taken by the FDIC to address a central cause of the financial crisis, the transmission of risk from badly underwritten mortgage loans through residential mortgage-backed securities.”
Read More via The Wall Street Journal