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They may not see eye-to-eye on how mortgage giants Fannie Mae and Freddie Mac can best provide equitable access to home ownership, but two U.S. lawmakers who are on opposite sides of the aisle have taken up the cause of private mortgage insurers that the mortgage giants rely on.
House members Blaine Luetkemeyer and Emanuel Cleaver of Missouri have joined a chorus of lending industry groups in urging the Securities and Exchange Commission (SEC) to tread carefully as it moves to root out conflicts of interest that regulators say contributed to the 2008 subprime mortgage meltdown and financial crisis.
The SEC in January proposed a rule that’s designed to prevent the many parties involved in pooling assets like mortgages into securities from taking positions against the investors who buy those securities. The rule would prohibit “conflicted transactions,” such as selling those same securities short or purchasing credit default swaps that pay returns if the securities lose value.
The problem with the proposed rule, lending industry groups say, is that it could hinder a system that private mortgage insurers have used to transfer nearly $68 billion in risk since 2015, freeing up capital that they can use to insure more mortgages backed by Fannie and Freddie.
Fannie and Freddie typically require that borrowers making down payments of less than 20 percent obtain private mortgage insurance. If borrowers default, the insurance helps the mortgage giants keep payments flowing to investors who buy mortgage-backed securities (MBS) from them. Private mortgage…