The Mortgage Bankers Association is the latest organization to register their opposition to the Financial Stability Oversight Council's. Their comment letter says, "On Wednesday, December 12, 2012, the Mortgage Bankers Association (MBA) joined several other groups and trade associations, collectively representing thousands of American businesses, non-profits, and state and local governments, in opposition to the Financial Stability Oversight Council's (FSOC's) consideration of certain regulations aimed at money-market mutual funds (the Proposal). MBA thanks FSOC for the opportunity to comment and submits this letter to expand upon the contents of that joint letter, offering the perspective of the mortgage banking industry on why this rule would have a severe adverse impact on the housing market."

David Stevens, President and Chief Executive Officer, writes, "Following the 2008 Financial Crisis (the Financial Crisis), the Securities and Exchange Commission (SEC) amended Rule 2a-7 to further reduce the susceptibility of money-market mutual funds (MMMFs) to the isolated problems seen during the financial crisis.... In October, 2010, the SEC issued a formal request for public comment on additional reforms, including floating net asset values and minimum balance at risk requirements. However, in August 2012, the SEC announced that it would "not proceed with a vote to publish a notice of proposed rulemaking to solicit public comment on potential structural reforms of MMMFs.""

The letter explains, "FSOC is currently considering three options for regulating MMMFs: Require MMMFs to have a floating net asset value per share. MMMFs would no longer be able to rely on a special exemption to use amortized cost accounting and rounding to maintain a stable net asset value of $1.00 per share. Allow for a stable net asset value, but require a "buffer" of up to 1% of assets to absorb day-to-day fluctuations in portfolio value. This alternative would also require that 3% of a shareholder's highest account value in excess of $100,000 during the previous 30 days be made available for redemption on a daily basis, called a minimum balance at risk (MBR). Allow for a stable net asset value, but require a buffer of 3% of total assets, coupled with other measures, including diversification requirements; increased minimum liquidity levels; and more robust disclosure requirements."

The MBA tells us, "These alternatives are similar to the measures the SEC declined to issue for public comment. It is important to recognize that any of the proposed alternatives would substantially impair the MMMF model by reducing the amount of capital available for investment, which in turn will make the entire vehicle less attractive for investors. MBA submits the below comments to highlight the harmful impact this Proposal would have on mortgage lenders, and in turn the housing market as a whole.... Mortgage REITs are important consumers of the cash supplied by MMMFs, using this liquidity to finance a substantial percentage of their investments.... MMMFs financed more than $331 billion of agency and GSE-backed securities and held more than $513 billion worth of repo assets, including repos that are collateralized by mortgage products, as of the end of the third quarter of 2012."

They explain, "FSOC's Proposal would undermine the attractiveness of MMMFs by removing much of the certainty associated with the investment vehicle. For instance, floating the per share net asset value will result in MMMF investors being subject to the risk of a fund's share price declining; this risk would far exceed the rate of return garnered by investing in MMMFs. Likewise, a liquidity buffer would limit investors' ability to access their money, denying investors the liquidity that makes MMMFs so attractive.... Both options will result in substantially higher borrowing costs for mortgage REITs due to the elimination of MMMFs' economies of scale, resulting in REITs deleveraging portions of their mortgage portfolios."

Stevens continues, "MBA strongly recommends that FSOC withdraw its Proposal and elect not to recommend these regulations be imposed on MMMFs. The Money-Market Mutual Fund is a unique investment vehicle that has allowed cash to be allocated far more efficiently. Removing from investors the security and liquidity that is a staple of the MMMF investment would roil the marketplace and unnecessarily raise borrowing costs, harming or even reversing the fragile recovery. MBA remains committed to furthering the recovery of America's housing market, and again thanks FSOC for the opportunity to submit these comments."

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