The GSE regulator recently unveiled strategic plan recognizes that Fannie Mae and Freddie Mac likely will be around for at least a few more years–and the only way to reduce their dominance in the market is to raise guarantee fees while providing a secondary market execution for private securitizations.
“It is more of a technician’s view of how to diversify risk in the mortgage market, than a political solution,” said Robert Zimmer, a principal at TVDC–a financial services consulting firm familiar with the plan.
The Washington lobbyist expects the FHFA’s proposal will have legs no matter who wins Tuesday’s election. “I think it would move forward under either administration,” Zimmer said.
A report by Dechert LLP’s finance and real estate group notes that the most specific part the FHFA’s strategic plan deals with its proposal to “build a single new securitization platform that can be used by both enterprises and the private sector.”
Dechert attorneys write that the FHFA is trying to encourage all market participants to use a new system for document custody, standardized data reporting, along with a common pooling and servicing agreement that can be shared openly on the same platform.
The FHFA, in general, is trying to fill a vacuum created by the legislative stalemate over GSE reform.
In its strategic plan the agency “acknowledges that it is not in a position to drive the transition to a new model of housing finance.” But “by being the first to build the highway to reform, it does hope to attract enough traffic to necessitate that highway being built.” The comment period on the FHFA’s strategic plan ends Dec. 3.
Meanwhile, questions remain on which entity would control the securitization platform. If it’s a government-owned platform, “it ought to have a five-year sunset,” according to American Enterprise Institute resident fellow Alex Pollock. In other words, after five years, the platform should be sold or auctioned off to the highest bidder.