WASHINGTON — The American Bankers Association recommended several fixes Thursday for the mortgage overhaul bill pending in the Senate Banking Committee.

The letter comes ahead of a scheduled April 29 vote on the bill, which was unveiled by Sens. Tim Johnson, D-S.D., chairman of the banking panel, and Mike Crapo of Idaho, its ranking Republican, last month. The bipartisan plan would unwind government-sponsored enterprises Fannie Mae and Freddie Mac and establish a private secondary market backed by a government guarantee in the event of catastrophic losses.

Overall, the ABA reiterated its support for the legislation, calling it a "significant step forward," before delving into half a dozen recommended fixes.

"The Johnson/Crapo discussion draft is a substantial achievement and a solid vehicle for legislative reform of the government guaranteed secondary market system. It is our hope that our proposed changes are helpful in advancing this important legislation," wrote James Ballentine, executive vice president of congressional relations and public policy at the ABA.

Some of the proposed changes are similar to those requested by other industry players, including community bankers and credit unions, in recent days. The ABA, for example, asked banking leaders to limit the role of a new regulator that would oversee the market, the Federal Mortgage Insurance Corp., to avoid "duplicating, overriding or conflicting with other authorities." 

The trade group also asked that originators be prohibited from serving as guarantors in the new system, and vice versa, in line with others who worry that the large banks could control too much of the market.

Among the other suggested changes, the ABA requested that lawmakers simplify the user-fee structure for affordable housing programs and establish the new regulator as a "traffic cop" monitoring use of bond guarantees and capital market executions in raising capital to back the new securities. 

"The discussion draft allows both a guarantor channel and a direct capital markets execution channel as forms of credit protection for covered securities. Allowing these options is desirable in that it provides for the maximum flexibility for the new secondary mortgage market to develop," the letter says. "However, we do have concerns that one channel could become dominant and crowd out the other channel, increasing the potential for market instability, and denying consumers and market participants those advantages explicit and implicit to each channel."

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