This part is good...
"If the structure of the new guarantee is not compatible with TBA execution, a wide range of stakeholders have expressed concerns that access to credit will tighten for borrowers, making mortgages more expensive - especially in rural and historically underserved areas. This outcome is unacceptable. "
What does he mean by create "system"? Don't we already have a working system in place?...
'It will be essential to create a system that protects taxpayers, but also does not create so many inefficient layers that the mortgage market becomes too expensive for qualified borrowers."
Does this statement echo Obama's "heads we win, tails you lose" comment? It says here "failed system"...
"A housing finance reform in which the government ostensibly does not guarantee housing would inadvertently recreate the implicit guarantee that was one of the worst aspects of the previous failed system." That implicit guarantee made it possible for the private sector to receive the upside when Freddie Mac and Fannie Mae (the GSEs) did well, but left taxpayers with the bailout when the market collapsed.
It's obvious that Johnson wants some sort of Gov't guarantee. Warner and Corker want that as well...
"No one disagrees that the role of the government must shrink, but it must also be recognized the critical counter-cyclical role the guarantee plays."
Transition? Does this mean winding down in 5 years???...
"The liquidity of the current $4 trillion GSE MBS markets must flow seamlessly into the new market and not be orphaned in the transition."
This is where they need to allow Fannie and Freddie to recapitalize after net zero. Will they allow that to happen is the question...
"Most proposals assume the private entities or capital structures will take losses up until the point the entities fail or the structures are tapped out so the question then becomes how much capital these entities must set aside in anticipation of losses. "
Not to sound negative or bearish. I'm not 100% convinced that Johnson and Crapo's plan will be good for shareholders. I don't see anything in this article that states that they intend on releasing FnF from conservatorship or allow for recapitalization. At the same time it acknowledges all the essential functions that FnF provide to the market and they realize that it cannot go away. There needs to be a Government guarantee. The 30 year fixed must be maintained. Private capital must bear more risk.
This can obviously be done with the current system in place.
Any other thoughts on this?
AI
