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dress code Second String The government-sponsored enterprises continue to dominate the nation's secondary market, but LTVTrade's recent response to the FHFA's plans for restructuring the housing behemoths could provide a better way to transition Fannie and Freddie out of lending's starting lineup. W ith the government-sponsored enterprises (GSEs) still in conservatorship and little in the way of a defined plan for reducing housing's dependence on Fannie Mae and Freddie Mac, change remains imminent yet elusive in the secondary market. However, LTVTrade is seeking to stimulate fresh innovation in the stagnant sector, providing key insights in response to the Federal Housing Finance Agency's request for input on the organization's recent whitepaper, "Building a New Infrastructure for the Secondary Mortgage Market." Find out what LTVTrade believes could promote positive momentum in housing finance—and what it means for mortgage professionals throughout the lending cycle. Do No Harm The Right Role Protecting the Taxpayers License and Registration Sustainability vs. Speed The Problem: The Problem: Pointing out a significant dichotomy in the 2012 proposal, LTVTrade stated that the FHFA's restructuring would likely "expand the government's operating role in the housing finance sector rather than shrink it," while crowding "out the opportunity for private actors or private initiatives to take hold in the marketplace." The Problem: The FHFA's letter to Congress indicated that a "public utility" construct would provide a platform through which "American taxpayers realize a return on their substantial investment in the enterprises." But LTVTrade disagreed with the agency's assertion, citing long-term implications that "will put taxpayers at greater risk." The Problem: The Solution: The Solution: Responding to the proposed alterations, LTVTrade challenged the FHFA to forgo a role in "building and operating any additional secondary market infrastructure." Instead, LTVTrade suggested the FHFA use its position as "the unified regulator for the housing finance sector" to serve as a catalyst for "private sector participation in a new secondary market infrastructure." Elaborating on other operational failures that could put consumers at risk, including "poor service, inefficiency, a lack of competition, and minimal innovation," LTVTrade's president and founder, Dean DiCarlo, stressed the importance of a diversified plan for repositioning the GSEs. Specifically, DiCarlo touted a structure that is not "concentrated in a single government agency for policymaking, regulation, and acting as owner or operator of a national service." The Problem: Due to Fannie and Freddie's enormous stake in the mortgage industry, guiding the GSEs through the next phase of conservatorship with the eventual goal of reducing or completely eliminating their role in housing finance will require a very precise and extremely lengthy plan for transition, yet creating an integrated, collaborative, and sustainable process for repositioning the government bodies has eluded lawmakers. Referencing a Congressional report from early 2012 in which the FHFA proposed the creation of a new infrastructure for the secondary market under a "public utility" construct, LTVTrade labeled the consideration of such a plan a "step backward as it will lead to a further consolidation of power over a critical sector of the U.S. economy and within a sole entity, FHFA itself." The Solution: Recommending an alternative, LTVTrade called for the establishment of private markets, noting "that by opening up the operation of the secondary market platform to private sector actors, FHFA can take the first real step toward bringing private enterprise back into the housing finance sector." Emphasizing that the FHFA's plan to "build and operate the secondary market infrastructure itself is incongruent" with reducing the industry's dependence on Fannie and Freddie, LTVTrade expressed its support for a more dynamic, multifaceted approach. The Solution: Focusing on the creation of a clear, finite plan to direct private funding back to the marketplace, LTVTrade recommended that the FHFA "license one or more private entities with exclusive authority to build and operate this infrastructure." The Solution: Suggesting a strategy that could bridge the transitional gap as private capital makes its way back into the marketplace, LTVTrade presented a plan that would maintain a link between the GSEs and the private market, recommending that the government "mandate that a certain percentage of enterprise business be conducted over these privately operated platforms. The M Report | 15