Congress should downsize Fannie Mae and Freddie Mac but ensure the GSEs continue to provide secondary market access for small mortgage lenders, according to a trade group of 100 community banks and mortgage banking firms.

The Community Mortgage Lenders of America wants the two government-sponsored enterprises preserved in their current form. They will oppose efforts to privatize Fannie and Freddie or convert them into public utilities because it might lead to further dominance of the mortgage market by a few large banks.

"Congressional action that further concentrates the mortgage market and starves small lenders and small communities can hardly be called reform," according to a CMLA white paper on GSE reform released Wednesday afternoon.

The white paper calls for GSE governance changes to prevent risk taking and higher guarantee fees that recognize the federal government's explicit backing for the two GSEs.

The trade group also wants Fannie and Freddie to repay all government assistance the companies have received since they were placed in conservatorship in 2008. "CMLA believes that they can and should repay taxpayers fully," the white paper says.

In terms of downsizing, the lender group suggests that Fannie and Freddie's market share should be "normalized" at roughly 30%-35% of the secondary mortgage market.

CMLA is the first trade group to call for Fannie and Freddie to remain intact, according to chairman Mark McDougald. "However, we call on Washington to move expeditiously and to avoid drastic, politically driven changes that will harm small lenders and the small communities in which they serve," McDougald said.

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