Thomas Hamilton, managing director at Barclays Capital, testified today on behalf of SIFMA at a hearing titled “Examining the Housing Finance System: The To-Be-Announced Market” before the Before the United States Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Securities, Insurance, and Investment.
In his testimony, Mr. Hamilton discussed the “To-Be-Announced” (TBA) market, which is the most liquid secondary market for mortgage loans and mortgage-backed securities in the world.
Highlighting the ways in which the TBA markets work, the benefits they confer on consumers and the economy, and their important role in mortgage finance, Mr. Hamilton noted, “the vast liquidity and forward-trading nature of the TBA market provides key benefits to consumers, such as the broad availability of 30-year fixed rate mortgages that may be prepaid without penalty, and significant and consistent liquidity in the secondary mortgage market. This results in a stable and attractive funding source for lenders that allows them to provide lower mortgage rates and longer-term ‘rate locks’ for borrowers, and efficiently recycles funds back to local lenders to enable another round of mortgage lending.”
Mr. Hamilton explained that the TBA market is facilitated by the guarantees of Ginnie Mae, Fannie Mae, Freddie Mac, and therefore the support of the government that stands behind them. Agency MBS do not expose investors to credit risk, and therefore the market is attractive to risk-averse investors that have vast sums of capital available for investment.
Without the TBA market, SIFMA believes that the majority of this investment capital would be directed elsewhere, reducing the amount of funding for and raising the cost of mortgage lending. Therefore, maintaining a liquid and viable TBA market should be considered as Congress addresses housing finance reform.
While SIFMA believes the TBA market should play a role in the future, it should not be 90% of the market. The reality is that that this current outsized role of the government is not sustainable over the long term, and should be reduced. The TBA market’s role, and the government’s role, should shrink as the private markets regenerate over time. The means of achieving this rebalancing are very complicated and consequential on a national, financial, and personal level. Being able to withdraw the government from mortgage markets will require a carefully planned and sequenced transition which should take a number of years.
“We believe that it is critical that the planning and execution of significant changes to the funding of mortgage loans be done with attention to detail, be based on sound analysis of costs and benefits, be mindful of unintended consequences, and create a long-term beneficial and stable environment. While we cannot predict the future, we can use the past as a guide and apply lessons learned and mistakes made, the good and the bad, to a design that will stand the test of time,” said Mr. Hamilton.
SIFMA’s full testimony is available at the following link:http://www.sifma.org/issues/item.aspx?id=8589934926.