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» VISIT US ONLINE @ DSNEWS.COM 61 legal recognition." Bright further explained that it can be difficult explaining the nuances of the American mortgage market even to policymakers in Washington, but "at least in America, we're all used to 30-year fixed-rate pre-payable mortgages and stuff like that. In Europe and Asia, you might have to start that discussion more from the ground up." Ginnie, however, is already a known quantity in those markets. Bright continued, "To try and rebuild all of that global awareness for a totally new bond seemed a bit silly and unnecessarily complex in our view." Parrott also put Sen. Crapo's proposed outline for housing finance reform under the microscope recently, examining the ins and outs in an Urban Institute paper entitled "How Chairman Crapo's Outline for Housing Finance Reform Can Work." Crapo's plan would allow lenders to sell their loans to chartered guarantors, who would then issue securities through Ginnie Mae. Lenders could also securities themselves via Ginnie Mae, and could also sell their loans to a loan aggregator. Under this system, guarantors would issue insurance to cover the credit risk on the lenders' pools. Although Parrott's examination of the Crapo outline did spotlight several issues that still needed to be addressed, including how to integrate existing systems and "what capital and regulatory regime to impose on guarantors to ensure that they are protecting the taxpayers standing behind the system," Parrott's write-up nevertheless concluded that the proposal held "significant promise, making it a worthy place to renew the much delayed, but still badly needed, effort to overhaul the housing finance system." For all the talk earlier this year of the White House trying to make a move on the GSE reform front, Rood told DS News that he doesn't see any likely path forward outside of administrative reform, at least not in the foreseeable future. "Most legislation tends to get passed when one of two conditions are present," Rood said. "Either 1) there's an emergency and everybody has to rally together against an outside foe or event, or 2) they pass legislation when it doesn't matter anymore. At that point, people are just tired of talking about it, so it's less relevant and you're more likely to see a bipartisan solution passed." "To be honest, it's FHFA with most of the power here," Parrott said. "Anything Treasury or the White House wants to do, they can only do through an agreement with the regulator and conservator of the GSEs. e FHFA, on the other hand, can move unilaterally, imposing a new capital regime, changing pricing—and with it the amount of cross-subsidy the GSEs provide—the size and nature of their footprint, and so forth." As for Bright, have the intervening years— and a stint at Ginnie Mae—altered his view on how best to proceed with these reforms? "I believe that if we want more than just two companies in this space, it's going to be hard to get new entrance if they have to be issuer as well because they won't have a funding advantage," Bright said. "Some people don't see it as a problem in the first place. at's a different level of policy debate. We were basically saying, if you want competition, here's one way that you probably can get it." Bright joked that lenders and servicers may have occasionally had something of a "frenemy" relationship with the GSEs, but that further reforms could help put all the players on more equal footing. "It would be more of a pure B-to-B dynamic where you have an origination business and then you have a secondary market business," Bright said. "Fannie and Freddie work hard to innovate for their customers, but they've inherently got a lot of weight on their side given the fact that they're government- chartered enterprises. If you're going to have a system where it's private actor interacting with private actor, there could be some advantages to having both aspects, both silos, be more pure businesses that are actually competing for each other's products and innovation." "When things are bad, the government steps in ... and then the government stays in. We haven't figured out that part of the cyclicality agenda yet." —Michael Bright, President and CEO, Structured Finance Industry Group

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