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» VISIT US ONLINE @ DSNEWS.COM 59 Treasury rates in order to buy delinquent loans out of pools, and with the Federal Reserve then buying most of the product they issue, Bright told DS News that the paramount strength of the current system is that it is very good at making mortgages cheap. However, that doesn't mean it's without its flaws. "It'd be nice to get to a place where these rates can be low, but not quite as subsidized, where the market can stand on its own two feet," Bright said. "e idea of counter- cyclicality is supposed to be that when things are bad, the government steps in, and then when things are good, the government backs away." However, Bright observed that Washington sometimes only follows part of that protocol. "When things are bad, the government steps in … and then the government stays in," he joked. "We haven't figured out that part of the cyclicality agenda yet, but we'll see." Collingwood's Rood also credits the GSEs for leading in the field of technological innovations, "creating new tools to drive efficiencies, mitigate risk, and offload risk for lenders at a time where they would probably struggle to make those investments themselves." He added that the GSEs are also doing this work "when they have no financial incentive to do so." Rood added that both Fannie and Freddie are doing "a good, thoughtful job" of making the servicing of GSE loans less expensive and less risky. "ey're automating many of the claims-related activities, which generally carried a lot of tail risk because you could find yourself liable for bad claims at some point in the future." 10 YEARS OF CHANGE Of course, it would be a mistake to view the notion of housing finance reform as a binary— either a huge, all-encompassing reform bill is passed or it isn't. As those DS News spoke to pointed out, that ignores all the ways that the system has course-corrected over the years since the crisis, in big ways and small. Rood said that the GSEs as they exist now are "far more prescriptive, and there are tools now available to servicers to help them with loss mitigation, foreclosure prevention, and default management. Most of those tools didn't exist in the past, so it makes it all more predictable, more rote, and less risky. e tools the GSEs have put out there have helped manage the costs of servicing delinquent or defaulted borrowers." "Since the companies were taken to conservatorship, Congress has performed a lot of oversight and a lot of big idea creation," Bright said. "ere hasn't been some major big-bang legislative effort that's passed into law. Congress has also played an oversight function, and has undone some things that the FHFA has done here and there, or encouraged the FHFA to do more. Meanwhile, the FHFA and the enterprises—who know the details of their business better than a member of Congress does, by definition—are experimenting within the system." Bright posited that, while there hasn't been a single large-scale piece of reform legislation passed, "eventually, a law will be signed that codifies many of these ideas." Until then, housing finance reform will likely remain an evolutionary process. at more measured approach is one that has no shortage of supporters. In early March, several industry groups sent a letter to the FHFA urging it to take a cautious approach to reforms going forward, recommending that the agency leverage and build upon the current structures of the GSEs. e letter also urged that a commitment to facilitating more affordable housing remain paramount throughout the process. Addressed to FHFA Acting Director Joseph Otting, the letter stated, in part, that "any efforts to meaningfully change the GSEs' market presence must be undertaken carefully, with vigilant monitoring and frequent recalibration (if necessary) to avoid disruptions to the flow of mortgage credit into the single- family and multifamily real estate markets. Efforts to reduce the GSEs' footprint should not move forward unless there is compelling evidence that the private market is able to assume an expanded role." A MOVE TOWARD CONSOLIDATION One major change on the near horizon, of course, is the impending launch of the GSEs' universal mortgage-backed security. First announced in March 2018, the universal mortgage-backed security (UMBS) are set to "We need to be clearer about the role we want private capital to play in the system and what role we want the government to play in the system—as right now the roles are utterly conflated." —Jim Parrott, Nonresident Fellow at the Urban Institute

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