Gov. William Donald Schaefer yesterday signed into law a bill that struck a delicate compromise between the companies that buy and sell mortgage-backed securities and the state officials who want freedom to regulate the securities.
The bill exempts Maryland from a 1984 federal law intended to enhance the availability and affordability of home mortgages. The Secondary Mortgage Market Enhancement Act (SMMEA) required states to treat government securities, such as those issued by the Government National Mortgage Association (Ginnie Mae), the same as some non-government secu
rities that aren't backed by the full credit of the U.S. government.
So a state that allowed insurers and credit unions to invest a certain percentage of their portfolios in Ginnie Maes had to allow the same amount of investment in highly rated non-government issues, such as those from the Federal National Mortgage Association (Fannie Mae).
Partly because of the SMMEA, the market for mortgage-backed securities grew from $4 billion in 1984 to a projected $31 billion this year. But Congress gave states until Oct. 3 this year to exempt themselves from the law, and states became concerned that the SMMEA would tie their hands if sometime later they wanted to pass a law governing such securities.
The bill that lawmakers and securities traders worked out this week, and that the legislature passed Wednesday night, exempts Maryland from the SMMEA but allows the insurers and credit unions to continue to invest in the non-government mortgage securities until the legislature decides otherwise. With the exemption from the federal law, Maryland legislators may pass laws in the future concerning "government securities" that don't include the full panoply of securities covered by the SMMEA.
"The preservation of state regulatory authority is really the sole purpose of this bill," Bruce Martin, a legislative assistant to Governor Schaefer, told lawmakers at a hearing on the bill Tuesday.