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I N D U S T R Y I N S I G H T / D E N I S B R O S N A N
GSE reform may be the new "third rail" of American politics,
and maybe that's not such a bad thing. When Congress gets
involved, regardless of your perspective, the old adage applies:
be careful what you wish for. For all of the warts of the GSE
system, we see the outcomes of its traditional goals—preserving
market liquidity and promoting homeownership—in our
communities every day. e means may not be pretty, and there are probably
a million ways to improve if not replace it outright, but the ability of the GSE
system to aggregate capital towards these ends does work, it's what we've got, and
I believe we should be thankful in that regard.
Another less noticed but valuable role
of the GSEs is that of "market moderator,"
especially as it relates to the servicing of
mortgage loans. Servicing is a complex business,
requiring expertise, tools, and processes that
span from soliciting and collecting payments,
to aggregating and accounting for investor
remittances, all the way to satisfying borrower
issues and resolving defaults. For years, the
GSEs have provided uniformity of process
for servicers on their loans through their
servicing guides, their oversight and advocacy
mechanisms, and their technology investments.
For the GSEs, the payoffs of these efforts are
obvious: uniformity and predictability are
essential to managing and forecasting the
performance of their enormous portfolios.
While market participants may be less sure,
there are many benefits that flow to them as
well from the rational marketplace encouraged
by the GSEs' moderating role.
Over the years, the GSE programs have
created controversy and yielded mixed results.
In the 1990s, the GSEs developed "designated
counsel" programs, promising better results
and more rapid reimbursement of expenses
to servicers who used their pre-approved
foreclosure attorneys. I can still vividly recall
witnessing as a young lawyer the uproar this
caused in the legal community at conferences
GUARDING THE MARKET
