MReport March 2017

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16 | TH E M R EP O RT COVER STORY BEST IN ORIGINATION Waterstone Mortgage Corporation court battle that ends with a settle- ment in a second term. "I could see a settlement, but settlement is not wholesale reform," he said. Something to keep in mind when taking lessons from other privatization programs is that neither Chicago's parking meters nor Indiana's roads carries the potential to destroy a national economy like mismanaging hous - ing would. To be distinct, Trump has never stopped advocating for housing reform, but that might not necessarily involve retooling the GSEs in a major way. A Slow Exit P erhaps a more apt case study might be what Rood says is kind of a GSE but for student loans: Sallie Mae. At the begin - ning of the century, Sallie Mae wanted out of its government charter. Rather than just cutting the charter, the government gave the agency a few years to wean off subsidy. "I wonder if there aren't lessons to be learned from Sallie Mae," Rood said. Perhaps the federal government could find a way to let Fannie and Freddie off the hook slowly over a few years. But then, there's the risk of simply sticking a future adminis - tration with a gigantic problem. There's also the fact that when Sallie Mae was considering its postcharter future, Fannie and Freddie were actually asking the same question. The result? "They ran the numbers a hundred ways to Sunday, and they couldn't make the case to give up the subsidy," Rood said. The idea of following Sallie Mae's example, though, is similar to the Corker-Warner bill, a Congressional proposal from a few years ago that calls for the termination of the existing GSEs and also calls their existing hybrid public/private structure a failure. The bill outlines that the GSEs should cease operations within five years of enactment. In the interim, the bill would require a reduction in the size of the port - folios held by the GSEs, and it would eliminate the requirement for the GSEs to meet targeted housing goals. This, Whalen says, may be the administration's best bet on where to start any conversation on GSE reform—more so than the Hensarling proposal that made little traction but would essential - ly seek to sift all responsibility for the GSEs to the Federal Housing Finance Agency and then liqui- date the enterprises. Of course, there is the dim possibility that a lot of what is being worried about right now, this nebulous mention by Trump administration officials to look into housing reform, may just be noise—at least for the time being. There are some, like Whalen, who say that while Trump could have an effect on the mortgage industry, he hasn't had—and likely won't have—much of an effect on the GSEs themselves. Risk vs. Reward T hen again, the chatter may have more substance than it seems. Bright says he's been in Washington for six years studying such issues as housing reform, and it's the first time he's comfortable saying the tide is 50/50. It could be chatter; it could be set to become policy at any time. One way or the other, all the talk has certainly brought the GSEs to a tipping point. If it is more than just noise, Bright says a few things need to be looked at soberly. A main component will be the need to define very clearly what the government's role (or roles) will be in relation to the GSEs. And that will include making sure there is a backstop in place that could withstand a catastrophe (aka, the Treasury, he says). Remember, no one yet has found a way to take the Treasury subsidy out of the picture without making the whole system collapse. And if the talk has merit, the GSEs are going to need to posi- tion themselves to show just how valuable they can be. "For the GSEs to continue, they'll need to find creative ways to show a solid and growing pub - lic purpose," Rood said. A major drum they could beat is offering help for underserved markets—mi- norities, millennials, and the low- and moderate-income borrower. When all is said and done, he says, Trump's effect on the GSEs might just be to let them do that job and otherwise leave them be. If some new level of privatiza - tion does happen, competition between the GSEs would become more free-market competition, which is something they've never had to contend with, Jones says. Competition, he says is gener - ally a good thing, and it could drive more loan products."The flipside is, it could make it harder for smaller banks to offer those [products]," Jones said. Whatever happens, Rood says, the administration and all the players involved in decision mak - ing will need to keep a funda- mental question of risk vs. reward in balance: Is this risk harmful or good to the economy? "If that's not the first question asked, that's dangerous," Rood said. SCOTT MORGAN is a multi-award-winning journalist and editor based out of Texas. During his 11 years as a newspaper journalist, he wrote more than 4,000 published pieces. He's been recognized for his work since 2001, and his creative writing continues to win acclaim from readers and fellow writers alike. He is also a creative writing teacher and the author of several books, from short fiction to written works about writing. "For the GSEs to continue, they'll need to find creative ways to show a solid and growing public purpose." — Tim Rood, Chairman, Collingwood Group

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