WE’RE HEARING that two key themes in a white paper by the Bipartisan Policy Center’s Housing Commission earlier this year—the future of the insurance role in the private-label mortgage-backed securities market and how that might be tied to Fannie Mae and Freddie Mac—are gaining momentum.
The paper, “Housing Future: New Directions in National Policy,” envisions a “public guarantor” that would provide catastrophic insurance. This insurance would stand behind other credit enhancement as well as a tranche of private capital.
Since the paper came out there has been “additional talk” about the two key themes, notes Ellen Marshall, partner at national law firm Manatt, Phelps & Phillips LLP.
Marshall, who has experience related to structuring deals in the securitized market, tells us she finds the future of the insurance role an interesting one, noting that it can help the market get the most out of securities design.
“A lot of the pieces that are needed for the return to more private sector MBS market seemed be falling into place. The one piece that seems to be lagging from what I see is the availability of insurance
to the extent it was ever involved in MBS creation process,” says Marshall, who notes that a more liquid, securitized jumbo market can offer some advantages relative to
Having the GSEs help fill the insurance role “would make some sense,” she says. “They have a strong capability for understanding data. For all the criticism, they have quite a lot of quality people and systems, so the government might as well take advantage of them.”
Marshall suggests that the market should “look to the people and the systems GSEs as way for government to do insuring well” as opposed to a situation where they are wound down and their resources are no longer available.
When asked what form such insurance might take, she cites examples of the various forms of insurance that have been used in the history of the MBS market, including individual loan, pool and bond insurance.
“Any of those kinds of variations can be helpful in structuring deals,” Marshall says, acknowledging that there have been respective challenges that have surfaced over time when it comes to these various types of insurance, but also noting the market can learn from these and use them as a basis for improvement.
Bonnie Sinnock is managing editor of National Mortgage News and editor of Origination News. She has been covering the mortgage industry since 1995.
