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» VISIT US ONLINE @ DSNEWS.COM 81 unlikely any type of meaningful reform will occur during the current administration. Even with the number of bills proposed and borne out of bipartisan efforts, "we just don't see the extent of momentum that's going to result in them getting passed," Pereira said. "So unfortunately, I think the status quo is going to stay with us for quite a while." Katopis calls it "shocking" that lawmakers continue to make "grandiose statements" about private capital while the government "keeps scorning PLS investors, whether it's the AG [attorney general] settlement, eminent domain, or a variety of other issues" that the AMI has taken up since as early as 1999. "ere seems to be a lack of willingness for Washington and the state governance to do what's necessary to restore conditions to make it really viable for large return of PLS," Katopis said. In an op-ed for American Banker, Mark Zandi, chief economist for Moody's Analytics, along with Jim Parrott, a senior fellow at the Urban Institute and former senior advisor on housing policy with President Obama's National Economic Council, stress that the extraordinary measures enacted by the government in the throes of the crisis are no longer necessary. "Taxpayers are being put on the hook for billions of dollars" of government- backed loans each year, the two write. Such a backstop is unwarranted "as private lenders and investors are increasingly willing and able to take on the risk." FHFA TAKING MEASURES "In the absence of [GSE] reform legislation, the Federal Housing Finance Agency (FHFA) has attempted to bring private capital back into the mortgage market" by employing a number of calculated measures, Laurie Goodman, director of the Urban Institute's HFPC, testified before the Senate Banking Committee in December. Among those measures, FHFA has increased Fannie and Freddie's guarantee fees (g-fees) in hopes of shrinking the volume of the two mortgage financiers' new mortgage purchases. "ey have raised guarantee fees to encourage lenders to use other execution channels, such as holding loans in portfolio or opting for a private-label securitization," Goodman explained in her testimony to senators. "Future guarantee-fee increases of 10–20 bps could tip the execution of the highest quality loans to bank portfolios, which could, in turn, result in adverse selection to the GSEs. Private- label securitizations are much more expensive than either GSE or bank executions . . . and a considerably larger guarantee fee increase would be required for this execution channel to be used," Goodman told lawmakers. Pereira shares that sentiment. In terms of funding, he said "we're still seeing pretty limited demand" on the private-label side. "Non-agency RMBS remains less attractive when compared to bank balance sheet funding or agency execution. Fannie, Freddie, and the FHA still account for well over 90 percent of all mortgages being financed today, and that's a function of the high loan limits and the g-fees that are in place," Pereira explained. GSE RISK SHARING OFFERINGS WELL RECEIVED BY THE MARKET roughout the past 18 months, the GSEs have conducted several transactions to assess the market's appetite for capital markets transactions that involve risk-sharing. According to Goodman, these risk-sharing transactions are an effective means of shrinking the government's footprint in the market while the GSEs are in conservatorship. Goodman explained that the first risk- sharing deal brought to market by Fannie was priced too low as it was a new asset class. is served to entice investors who did not participate in the first deal to take a closer look at subsequent structures. Since then, spreads have tightened, and the asset class has gained market acceptance, "which is critical as policymakers look to the private markets to take more mortgage credit risk," according to Goodman. Because the GSEs' risk-sharing deals were so well-received by the market, Pereira expects Fannie and Freddie to continue to actively issue such instruments. "It's possible that those programs will expand, though when and to what degree is very unclear," he said. While the GSEs' risk-sharing offerings create transparency in pricing credit risk, the FHFA's Common Securitization Solutions, LLC, an enterprise established last fall, gives the regulator the means to test the waters for development of a single securitization platform for housing finance. is industry utility will be designed to support the issuance of securities by the GSEs and eventually, private mortgage industry participants, KPMG explained in a recent whitepaper. AMI stressed that while it supports the concept behind FHFA's common securitization platform, "the PLS investor needs to have access to it as well." As Zandi and Parrott put it, "e bottom line is that policymakers should focus less on the government's retreat from the mortgage market and more on creating the kind of investment environment needed to attract significant private capital. Only then will we be able to strike a healthier balance between private capital and taxpayer risk." P "There seems to be a lack of willingness for Washington and the state governance to do what's necessary to restore conditions to make it really viable for large return of PLS." –CHRIS KATOPIS COVER STORY M ARKET PUL SE INDUSTRY INSIGHT DATA & RESE ARCH

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