What Could Become of Fannie and Freddie?

by Trey Garrison


The consensus at this year’s Asset Backed Securities (ABS) Vegas conference seemed to be that you can look for GSE reform in 2014 – but optimism won’t equal results, the panelists warn.

Here are a few highlights of the inaugural conference, which was hosted by The Structured Finance Industry Group and Information Management Network:

Adam LaVier, the managing director of Millstein & Co., says movement of either the House or Senate bill is unlikely.

He does think the industry might see a Johnson/Crapo markup by spring 2014. “That’s 50-50,” he said twice.

On the House side, he doesn’t see the House’s PATH ACT proceeding at all.

“They’re intentionally taking a wait and see (approach),” he said.

As for any changes that might happen under the new leadership of Mel Watt at the Federal Housing Finance Administration, there will be loosening of lending standards at the GSEs and continuation of risk-sharing transactions.

Laurie Goodman, the center director of Housing Finance Policy Center at the Urban Institute, said her highest probability is “nothing changes” in 2014.

“I think a consensus is emerging about what a new system should look like, but while we will see agreement on the structure, we’ll see it breakdown in the plumbing,” Goodman said.

Over the long haul, she expects whatever reform takes place – and she joked it wouldn’t be before she talks on the panel again at the ABS conference in 2017 – will include preserving the TBA market, ensuring private capital takes the first loss and setting up a system that looks a lot like Corker Warner, where the GSEs get replaced with new entities.

But reform will be a long time coming, Goodman said.

She also agreed that the FHFA will be taking a different track immediately.

“There’s going to be less emphasis under Watt on bringing in private capital. And there will be far more emphasis on expanding credit and affordable housing policies under Watt. He likes the idea of subsidization,” she said.

Most agreed that a common securitization platform is coming, and that reform of the GSEs will happen – they just don’t see it before the next president, for the most part. Things are too polarized, and housing is just not a hot-button campaign issue.



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