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60 launch on June 3, 2019. e common securities will replace the Enterprises' current offerings of To-Be-Announced-eligible mortgage- backed securities. e UMBS will be issued through the Enterprises' joint venture, Common Securitization Solutions (CSS), using the Common Securitization Platform (CSP). At the time of the announcement, the FHFA explained that, after the June 2019 launch, CSP and CSS "will expand to include the administration of multi-class securities and commingled Enterprise UMBS and the production of UMBS disclosures." CSS and CSP will thereafter begin performing bond administration functions for close to 900,000 securities backed by nearly 26 million loans. "e UMBS and CSP, that's a bit of a rabbit hole," Bright told DS News. "I think that the jury's very much out on that. Continuing to evolve the GSEs' role so that they're not systemic holders of all those credit risks is important, but they need to have a more unified set of rules, technology, and architecture for managing the distribution of credit risk in an efficient manner." "e development of the platform and credit-risk-transfer process are both critical building blocks for a system like the one I've described," Parrott said. "Right now we're overly dependent on the GSEs for both their assumption of credit risk and their management of the securitization infrastructure. In order to free the system from its dependence on a TBTF duopoly, you have to address both. e CRT helps address the credit-risk concentration and the CSP helps address our reliance on them for the securitization infrastructure. However, both need to be expanded for this transition to work. e CRT needs to be made more durable by attracting more institution-based capital into the deals, institutions that will be there even when the markets get choppy. e CSP needs to be expanded to allow others to use it, so it is a tool to reduce barriers to entry rather than yet another barrier to entry." WHERE DO WE GO FROM HERE? Parrott recently wrote a piece for the Urban Institute's Housing Finance Policy Center entitled "Clarifying the Choices in Housing Finance Reform." In it, he walked readers through the history of the housing finance system prior to the conservatorships and provided a detailed examination of three prominent recent reform proposals: » MBA Proposal: Suggests turning Freddie and Fannie into privately owned utilities "with regulated rates of return and opening them up to the threat of competition from newly chartered guarantors." » e "Promising Road" Proposal: Co- authored by Parrott, this plan would utilize a common securitization platform and combine Freddie and Fannie into "a single government corporation that issues government-backed securities, sells off all the non-catastrophic credit risk on those securities, and guarantees interest rate investors the timely payment of principal and interest on their investments." » Bright and DeMarco's Proposal: Leverages and expands existing Ginnie Mae infrastructure to allow Ginnie Mae–approved issuers to get credit enhancement from private and government institutions, while also allowing Ginnie Mae to issue securities. Fannie and Freddie would "compete over the management of non-catastrophic credit risk." All three of these plans share some common elements: a government corporation overseeing securitization and guaranty of MBS, while allowing for more competition and a larger role for the private market. Bright told DS News that his and DeMarco's proposal to disaggregate the functions of issuer and guarantor was, on some level, intentionally provocative. Since Fannie and Freddie buy delinquent loans "in a subsidized way because they issue debt that trades basically flat to Treasury debt," Bright explained that "no new company could ever come in and compete with that because they wouldn't be able to replicate the funding cost of being the issuer." If you disaggregate those functions, however, you could "open up a pathway to competition." Speaking of why he and DeMarco determined that expanding Ginnie Mae's role made the most sense, Bright said, "e Ginnie Mae security was a platform that had been able to onboard a variety of different types of issuers onto it, and it was globally accepted as a security. e name 'Ginnie Mae' is already written into investor guides all over the world." Bright said that this viewpoint was only hammered home further during his time at Ginnie Mae. "Fannie, Freddie, the UMBS—whatever new security or new credit wrap Congress could create, there would inherently be a long process of going around and explaining it to central banks in China and Japan and ailand and Dubai and everywhere, saying, 'is is how this bond works.' Whereas with Ginnie, it already has the name recognition, so that also means it has Bright told DS News that his and DeMarco's proposal to disaggregate the functions of issuer and guarantor was, on some level, intentionally provocative. Since Fannie and Freddie buy delinquent loans "in a subsidized way because they issue debt that trades basically flat to Treasury debt," Bright explained that "no new company could ever come in and compete with that because they wouldn't be able to replicate the funding cost of being the issuer."

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