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JOHNSON ON PROTECTING SMALL LENDER ACCESS TO THE SECONDARY MORTGAGE MARKET

November 5, 2013

WASHINGTON – Today, Senate Banking Committee Chairman Tim Johnson (D-SD) held a hearing titled “Housing Finance Reform: Protecting Small Lender Access to the Secondary Mortgage Market.”

Below is Chairman Johnson’s statement as prepared for delivery:

“I call this hearing to order.

“Today we discuss a housing finance reform issue that is a top priority for many members of this Committee, especially those from rural states—small lender access to the secondary mortgage market. While there is much to criticize about the current housing market, one of its strengths is that we have a national market for both single- and multi-family housing. Because of the existence of Freddie, Fannie, and other programs, the secondary market serves lenders of all sizes in all areas, keeping credit accessible and affordable for consumers across the country.

“As we consider legislation to reform the housing finance system, I cannot overstate how important it is that we get the small lender access right. I applaud Senators Tester, Johanns, Heitkamp and others for focusing on this issue and making progress on a solution. Senator Crapo and I also believe this is a crucial element of any legislation and we continue the work to find the right path forward.

“Today’s witnesses will discuss their evolving thinking on how to protect small lender access to the secondary mortgage market and provide us with recommendations. They will also discuss what parts of the current system must be preserved, and what parts can be improved in a new system.

“Various proposals including S. 1217 suggest creating a mutual organization, or a cooperative, to act as an entry point for small lenders to the secondary market. We must think carefully about how such an entity would operate and be governed, as well as who should be its members, and construct it so that small lenders can continue to access the secondary market at a reasonable price and with ease. In addition, over 7,000 small financial institutions are members of the Federal Home Loan Bank System. Thus, we may also want to consider whether the Federal Home Loan Banks should play a larger role assisting their members to access the secondary market, and how.

“Unlike many large lenders, most small lenders choose to service the loans they make, which enables small lenders to keep a connection to their consumers and their communities. As we heard at last week’s hearing, this is often better for consumers, as many of the servicing problems we saw during the crisis came from lenders who sold their servicing rights. Thus, one of the essential tasks in building a new housing finance system will be to preserve the ability of small lenders to service their own loans.

“If Congress passes housing finance reform without getting small lender access right, it will be the homebuyers in rural and under-served areas who pay the price for that mistake. For all those families, each of the organizations represented here today and we in Congress must work together to identify the best options that will work.”

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