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» VISIT US ONLINE @ DSNEWS.COM 73 preservation. e harmonious tenor of these conversations stood in stark contrast to the rollout of the attorney networks in the 1990s, which hopefully signifies that the industry has begun to embrace the common good of sharing best practices. Over time, these best practices can form the basis for standards, many of which are codified by the GSEs. Qualified service providers can then compete on their ability to execute. at is how a rational marketplace behaves and the GSEs are its moderator, a valuable supply chain management role that must be contemplated when considering GSE reform. We encounter all sorts of moderators daily—a thankless job that often subjects its performers to significant derision (think of being an NFL referee in New Orleans). However, despite their peculiar quasi- governmental status, the GSEs are not law enforcement agencies. Rather, due to their interest as investors in securing effective outcomes, a better analog for the GSEs in their role as market moderator is a licensing board— they set standards and weigh the qualifications of market participants. Performing this role aids the market in producing efficient outcomes as well by leveling the playing field for providers willing to make the appropriate investments in people, processes, and technology necessary to meet their performance standards, scalability needs, and compliance expectations. While servicers and their providers may grumble, the GSEs' moderator role streamlines the marketplace to their benefit. To ensure its value doesn't get lost in the fog of battle over GSE reform, perhaps the GSEs could highlight and even augment the value of the moderator role in the default servicing marketplace? Going forward, the GSEs may improve their position and the perception thereof by ensuring their efforts promote efficiency, a goal shared by all market participants, in areas such as: CERTIFICATIONS: Reforming one of the most unloved progeny of the crisis, the vendor audit, is a watershed of opportunity for the GSEs. It's time to reduce the millions of dollars and countless hours expended by servicers and service providers in responding to the thousands of differently worded questions that address the same areas of inquiry. e GSEs are uniquely positioned to promulgate performance, scalability, and compliance standards that are attuned to the levels of transaction volumes and risk exposure generated by vendors' activities, and to require one-time annual certification of vendors' fitness for performance. If it's good enough for the GSEs, it should be good enough for the servicers. TERMS OF BUSINESS: Somewhere along the way in the evolution of the default servicing marketplace, the notion of bargaining among servicers and their service providers seemed to go out the window. Servicers' contracts are often longer and more draconian than insurance policies, specifically disclaiming volume and term commitments while dictating pages of intricate service-level commitments and requiring onerous, generally one-way indemnities, representations, and warranties. For the vendors who dare attempt negotiation, months of often silly redlining lie ahead (I always laugh at contracts with laundry lists of applicable laws to which my company must agree to comply—if they are truly applicable, I cannot contract away my obligation to comply). On the origination side, the GSEs prescribe all sorts of form agreements. How about developing a set of standard contracts that establish a fair baseline of risk sharing, so the parties can focus on striking a deal that makes economic sense? e default servicing segment evolved from a curious mix of providers ranging from small, often family-owned businesses like law firms to large, title company-based providers of products, outsourced services, and data. Amid the cacophony of thousands of vendors chasing about a hundred servicers for business, the notion of having two GSEs sitting as thoughtful moderators should be appealing to regulators and market participants alike. GSE reform-minded policymakers and the market participants who influence them should be wary of throwing this valuable baby out with the bathwater. Amid the cacophony of thousands of vendors chasing about a hundred servicers for business, the notion of having two GSEs sitting as thoughtful moderators should be appealing to regulators and market participants alike.

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