House Financial Services Chairman Barney Frank, D-Mass., praised the Securities Industry and Financial Markets Association for its decision Thursday to allow larger loans to be included in to-be-announced mortgage-backed securities.
The move came on the heels of a letter Frank and Rep. Gary Miller, R-Calif., sent Wednesday to SIFMA, the industry trade group, urging it to permit the co-mingling of all conforming mortgages in to-be-announced, or TBA, pools sold to investors.
"I appreciate the action taken today by SIFMA allowing newly originated high-cost area loans to be included in TBA mortgage pools," Frank said. "This move should help to reduce the cost of mortgages to borrowers in high-cost areas without any negative effect on rates for smaller loans."
The TBA market is a crucial source of liquidity for the so-called conforming loans that Fannie Mae (FNM) and Freddie Mac (FRE) can buy. It allows lenders to sell loans in advance of originating them, which helps them determine the rate charged to borrowers.
SIFMA had resisted calls to include the bigger mortgages in TBA pools after Congress earlier this year temporarily raised the caps on conforming loans to nearly $730,000 from $417,000.
It cited concerns about disrupting an already jittery secondary mortgage market, particularly since the new limits were temporary.
However, Congress has now lifted the loan limits permanently to $625,500 as part of a new federal law enacted earlier this month.
In their letter, Frank and Miller said they "understood SIFMA's decision to exclude the larger loans" from the TBA market.
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