Yet another turf fight is shaping up between federal agencies. Both the Securities and Exchange Commission and the Government National Mortgage Association are drawing up plans to stop trading and sales abuses and establish federal regulations for the $50-billion-a-year market in GNMA pass-through certificates, the agencies report.
The GNMA market plays a key role in assuring home buyers of mortgage funds and guaranteeing prompt payment of the mortgage to the banks and financial institutions willing to loan the funds.
Until now, however, it has been largely a free-wheeling, unregulated sector. Publicity about alleged sales and trading abuses over the past five years has marked the GNMA arena as one ripe for regulation, drawing interest from the SEC and other federal agencies about its activities.
Last Thanksgiving, the University of Houston disclosed that it had lost several million dollars through the highly speculative - and unauthorized - trading in GNMAs by one of its financial officers. Earlier last year, the refusal of about 25 banks and credit unions in small towns around the country to pay $8 million in losses on Ginnie Mae forward contracts brought about the demise of Winters & Co., a Florida firm.
The SEC investigated possible fraud in both cases.
SEC staff attorneys currently are developing capitalization and trading rules for the mortgages certificates, sources say, although it is unclear whether the SEC has any claim to jurisdiction of the market.
Meanwhile, GNMA, which is a division of the department of Housing and Urban Development, has asked the legal community for wide-ranging recommendations on a complete regulatory structure for the secondary mortgage market. The recommendations will be used by GNMA to award a contract to a private firm later this spring to develop a comprehensive regulatory plan for GNMAs.
One of the items on which GNMA has sought comment is the present role of the SEC, Treasury Department, Commodity Futures Trading Commission, Chicago Board of Trade, National Association of Securities Dealers, Public Securities Association, Securities Industry Association, New York Stock Exchange, GNMA Dealers Association "and others as appropriate."
That broad question exemplifies to some critics, particularly some GNMA dealers themselves, the current confusion about the certificates themselves and which government agency should be involved in GNMA oversight.
The dealers and small mortgage banking firms whose livelihood is dependent on the market generally fear any change in the status quo, particularly possible involvement by the SEC. "You throw the SEC in here and you'll end up destroying the mortgage market," one Wall Street dealer said. "I'm not saying somebody shouldn't draw up the rules, but if it's (SEC's director of enforcement Stanley Sporkin, people will turn tail rather than be under his eye."
Some critics have noted that the SEC seems bent on broadening its regulatory mandate as the securities and bonds markets weaken.
"First they wanted a piece of the futures markets, now they want GNMA certificates," an executive vice president of a major New York brokerage said. "Interesting, isn't it, how it coincides with their (SEC) own bailiwicks' problems? Futures and GNMAs are flourishing, healthy markets. But if the government wants them to stay that way, to help not hinder the economy, they'd better keep the SEC out of it."
The broker was referring to recent SEC and Treasury recommendations to Congress that regulatory authority over future contracts on government securities, GNMAs and commercial paper be taken away from the Commodity Futures Trading Commission and divided instead between them [TEXT OMITTED FROM SOURCE]