The Mortgage Bankers Association will have the opportunity today to testify on proposed changes to the regulation of Fannie Mae and Freddie Mac, the government-sponsored enterprises.

We will tell the House Committee on Banking and Financial Services that the reason for Fannie and Freddie's existence is as valid as ever - to ensure dependable liquidity for a stable secondary market, particularly for single-family, long-term, fixed-rate mortgages.

They have not outlived their original purpose. At the same time, it is essential to ensure they do not outgrow it by entering primary markets already characterized by robust private-sector competition.

The secondary market plays an enormously important role in assuring that this country has an adequate supply of affordable mortgage credit. Our members have a strong commitment to the current system, in which Fannie and Freddie team with primary lenders to provide the American public with a uniquely successful residential mortgage delivery system.

The two markets depend on each other. For a viable secondary mortgage market to exist, a robust and competitive primary market is essential. Competition is the key to developing innovative products and to achieving the most efficient delivery of the most inexpensive residential mortgage credit.

Last year the primary market generated almost $1.3 trillion in home loans and $40 billion in loans for multifamily developments. Fannie and Freddie purchased about half of these mortgages.

But the essential stability of the primary market would be undermined if Fannie and Freddie were to expand their activities beyond their intended mandate. They enjoy special statutory advantages that could permit them to leverage the strength they derive from a less-than-competitive secondary market to dominate an extremely competitive primary market.

They have shown signs of doing that - by attaching conditions on deployment of their technologies, building brands, and investing in primary market nonlender participants.

By expanding beyond the intended boundaries of their charter, they could upset the equilibrium between the primary and secondary markets. The immediate casualties might be the existing mortgage providers, but consumers would be the ultimate losers. Less competition would lead to higher borrowing costs and fewer financing options. It would mean less responsiveness to consumer needs.

Fannie and Freddie were established to fill a void, not create one. Their mandate is to operate in the "secondary market for residential mortgages." But where does the secondary market end and the primary market begin?

We need to replace ambiguity with clarity. Statutory guidance is required - to ensure a clear separation between the roles of mortgage lenders and GSEs, to prohibit Fannie and Freddie from engaging in primary market mortgage activities, and to secure the role of mortgage lenders in originating and servicing mortgage loans and maintaining market contact with customers.

To assist Congress in its review of GSE oversight, the MBA has convened a blue-ribbon panel of mortgage company executives to examine the limits of secondary market activity and to develop an appropriate definition.

In a model of cooperation within the industry, Fannie and Freddie have agreed to participate with the MBA in a dialogue about the boundaries of the secondary market. Our goal is to produce a report with the MBA's views for Congress this fall.

Lenders, consumers, and the GSEs share a mutual interest in maintaining the balance of the primary and secondary markets. Working together with the GSEs and Congress, we have a unique opportunity to clarify Fannie and Freddie's role as cornerstones of the primary market - but not competitors in it - and to ensure the continuation of robust competition that keeps borrowing costs down and homeownership up.


Mr. Sumner is president of the Mortgage Bankers Association of America and President and CEO of Crossland Mortgage Corp. of Salt Lake City.

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