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69 "The chance of the GSEs leaving conservatorship any time soon is slim. There are a lot of obstacles and not a lot of agreement of how to do it. There needs to be agreement on capital and how the GSEs can de- risk." —Edward Pinto, Resident Fellow and the Director of the AEI Housing Center at the American Enterprise Institute Under the 2014 strategic conservatorship plan, FHFA outlined three goals: » Maintain safe and sound operations while fostering a liquid, competitive, and resilient housing finance market » Reducing taxpayer risk by increasing the amount of private capital in the mortgage market » Building a new single-family securitization infrastructure for use by the GSEs and adaptable for use by other secondary market participants "Conservatorship, and any associated cost- of-funds advantage related thereto, is also augmented by the carve-outs for QM and ATR through the safe-harbors created for the GSEs," said Tim Rood, Head of Industry Relations at SitusAMC and the Chairman of e Collingwood Group, a SitusAMC company. "e 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. e result is a much larger subsidy to borrowers through these government programs than would otherwise exist in the private markets." e benefit of the conservatorship is that it froze the market and allowed the GSEs to rebuild their capital, said Steve Horne, CEO of Insight One. However, stricter underwriting guidelines also made it more difficult for many consumers to obtain mortgages. Many potential borrowers could not meet the 43% debt-to-income ratio. While lenders could still make loans that didn't meet those guidelines, it would mean keeping loans in their own portfolio, which lenders are reticent to do. "e politicians understand this issue which is why solving for the GSEs has been difficult to get momentum around," Rood said. "It is also why consumer advocacy groups are pushing for an average prime offering rate (APOR) test for QM in the hopes that limiting the spread allowed for a QM loan will force lenders to keep risk premiums down for the loans that enjoy QM status today but would not under the existing non-GSE definitions (ex. 43% DTI being exceeded)." Seller-servicer guidelines for appraisals changed immediately with the conservatorship, said Bill Garber, Director of Government and External Relations for the Appraisal Institute. Previously, the same entity could make the loan and appraise the property. Under the new rules, a separate third party had to be used or there had to be a solid separation of the appraisal and lending processes if done with the same company. "ere weren't enough checks and balances before," Garber said. THE END IN SIGHT? When they went into conservatorship, few expected them to be there nearly a dozen years later. And even those calling for conservatorship to end soon, don't expect any changes until sometime after this fall's election. How quickly conservatorship will end remains a matter of debate. ere's no real consensus on the best way to end the conservatorship, Ornstein said. "ey've been shock absorbers for risk in the mortgage market. If they leave conservatorship, there's no assurance that the private market will step in." Allen Price, SVP at BSI Financial, said that any plans for emergence from conservatorship are likely to be put on the back burner until sometime after the current coronavirus pandemic has passed. e pandemic is going to have such a significant impact to the economy, that preparedness in not only planning for such health issues but in all phases of government, will be given a much more through examination, even if plans were thought to be good previously, Price says. Even before the pandemic, government organizations seem to be going in different directions. In October of 2019, the Treasury Department and FHFA agreed to allow the GSEs to keep $45 billion in capital to exit conservatorship, but a month later, the FHFA said it would re-propose the capital requirement rules sometime this year. e FHFA wants to ensure that the GSEs are a source of liquidity in an economic

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