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70 downturn and support equitable market access for small lenders, Calabrio said. So, the FHFA wants to build their capital, reduce their risk profiles, and strengthen the FHFA's regulatory capabilities. e FHFA plans to have a draft proposal for commentary around April, with a final proposal by the end of the year, meaning the soonest the GSEs could come out of conservatorship would be 2021. Even that scenario is dependent on the outcome of the coming election, said Michael Flynn co-chair of the Mortgage Banking and Financial Services Regulatory Industry Groups at the Buchalter law firm, who previously served as Acting General Counsel of the U.S. Department of Housing and Urban Development, and as General Counsel of Flagstar Bank and PNC Mortgage. "I've seen what Calabrio has said, and he's interested in pushing [conservatorship] forward, even if he can't get the outcome during the current Administration," Flynn said. "If there's a second Trump administration, the plans to emerge from conservatorship are more likely to move forward after the election," said Clifford Rossi, professor of the practice in finance and executive-in-residence at the University of Maryland's Robert H. Smith School of Business and former senior risk manager for Fannie Mae and Freddie Mac. "If the Democrats win in November, they might look at it a little longer." Whichever party is in power after the election will want GSEs with a stronger risk governance so that neither Fannie nor Freddie goes back to making the risky loans that were responsible, a least in part, for the conservatorship in the first place, Rossi added. "e chance of the GSEs leaving conservatorship any time soon is slim," Pinto said. "ere are a lot of obstacles and not a lot of agreement of how to do it. ere needs to be agreement on capital and how the GSEs can de-risk." Price agreed, adding that many in the industry would be skeptical of the ability to de-risk without very careful government oversight. So, he expects any emergence from conservatorship to be delayed until a couple of years after the election. e FHFA has hired Houlihan Loukey, an investment bank and financial services company to develop a plan for the privatization, but any plan is still in its earliest stages. "Houlihan Loukey will aid the FHFA in the development of a capital restoration plan on the heels of a capital framework; you can't build a plan until you know what the framework is," Rood said, pointing out that as of early March, the FHFA had yet to publish a new capital standard. "e most likely outcome in a conservatorship exit is that the UST and FHFA will need to amend the PSPAs of Fannie and Freddie to settle outstanding lawsuits with investors and amend the NWS to permanently stop the sweeping of their earnings. e enterprises will continue to be allowed to build capital to the new standard set by the FHFA—consistent with the requirements of conservatorship." e UST white paper on GSE reform runs the gamut of administrative and legislative reforms, but the preferences and priorities of stakeholders is largely unclear, according to Rood. What is clear is that the administration wants the GSEs to take less risk, to be fairly compensated for the risks they take, and to take risks that are commensurate with their level of capital. Rossi said another possibility to raise capital for the GSEs would be an initial public offering. MEASURE TWICE, CUT ONCE Several in the industry point to the need for a careful, gradual, well thought out plan before conservatorship would end. "You can't just unplug them; a lot of things could happen. e chances of getting it wrong are too high," Horne said. "Will they be capitalized enough and strong enough?", Flynn asked. Ornstein added that, even if the end of conservatorship is some time off, the GSEs will definitely have a smaller role in the mortgage market of the future. e "qualified mortgage patch," which exempts GSE-backed loans from meeting all aspects of QM terms, "The Safe Harbor provisions have allowed the GSEs to issue loans to borrowers whose loans would not otherwise qualify as QM, at a lower price point than private capital. During this same time, lending through GNMA- backed programs has also greatly expanded. The result is a much larger subsidy to borrowers through these government programs than would otherwise exist in the private markets." —Tim Rood, Head of Industry Relations at SitusAMC and the Chairman of The Collingwood Group, a SitusAMC company

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