Risky Business

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feature SECONDARY MARKET Or ig i nat ion s e r v ic i ng The BPC Housing Commission model suggests a period of five to 10 years to transition away from Fannie Mae and Freddie Mac. While that time frame sounds long, it matches up very well with the staging plans enumerated by the FHFA in its 2013 GSE scorecard. FHFA Sets Credit Risk Sale Goals R A na ly t ic s well to the BPC housing plan of seeking private credit enhancers in the new mortgage market. FHFA Plans New Infrastructure for Secondary Market W hile the GSEs execute the credit risk sales, the FHFA has announced its intention to move forward with its plan to build a single issuer securitization platform. The development of this securitization utility offers a new common approach to generic functions such as issuing securities, providing disclosures, paying investors, and disseminating data. To emphasize the standardization of the securitization process, the new company charged with building and managing this market utility will have its own CEO and chairman of the board separate and distinct from Fannie Mae and Freddie Mac. In addition, the new company will be physically located separately from the GSEs' offices and will be managed by FHFA. In building the new infrastructure for the secondary mortgage market, FHFA intends it to be pliable so that over time it can be adapted as the central pinning of the new mortgage marketplace. Leadership in Housing Reform A s the mortgage and housing finance markets heal from the financial crisis, it is opportune to begin consolidating public policy around the future of Fannie and Freddie. Whether by coincidence, or good timing, the plans of the BPC Housing Commission and the FHFA 2013 scorecards have intertwined and are beginning to illustrate a path forward. The plans forecast for 2013 bode well for creating transparency in pricing credit risk and developing a single issuer securitization platform for the future of housing finance. The BPC Housing Commission has elevated the reform discussion with a documented outline of a future state. The actions of the FHFA are creating more observations on the cost of credit risk while contracting the GSE portfolios. These steps taken together provide Congress with new information to consider as its members formulate the legislative wind-down of Fannie Mae and Freddie Mac. The M Report | 77 se c on da r y m a r k e t educing the government's exposure to credit risk in the mortgage markets is the central tenet of the BPC plan for reform of the single-family mortgage market. Successfully reducing the government's role is also a step-at-a-time proposition, but specific goals are set by the FHFA in the GSE scorecards for 2013. In particular, risk-sharing transactions of $30 billion per GSE are set as targets. In advance of a credit risk transaction by Freddie Mac, the GSE announced that it is making available loan-level credit performance data on a portion of fully amortizing 30-year fixedrate mortgages that the company purchased or guaranteed from 1999 to 2011. This loan-level data from more than 15 million loans creates transparency and will help investors build more accurate credit performance models. While Fannie Mae has yet to publish similar loan-level data for its portfolio, the firm also plans to sell credit risk and may seek other avenues such as reinsuring transactions to start the process. Whether through the release of loan-level credit attributes or through additional increases in guarantee fees, FHFA is methodically approaching price discovery in an effort to find that tipping point where private capital is properly incented to re-enter the mortgage markets. The GSE scorecard components around contracting the portfolios line up

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