NAR Submits Comment to Fed on Impacts of GSE Reform

NAR, in collaboration with Andrew Davidson & Co—a boutique firm that specializes in pricing mortgage-backed security (MBS) and credit risk transfer (CRT)— submitted a comment to the Fed’s Treasury Market Practices Group (TMPG). The TMPG is a panel of academics and industry experts in capital markets (e.g. JP Morgan, Black Rock) that advises the Federal Reserve. The TMPG put out a white paper on potential pitfalls from government-sponsored Enterprises (GSEs) reform and asked for input. NAR previously collaborated with Andrew Davidson & Co on NAR’s private market utility proposal.

The response emphasizes:

1. An inappropriate government guarantee will raise risks to the system and costs to consumers. Studies to date focused on the impact in normal times, but more study should be done on the cost to consumers in a crisis;
2. The uniform mortgage-backed security (UMBS)—the joint Fannie/Freddie MBS that replaced their individually branded MBS—was an important innovation. It relies on a sound to-be-announced (TBA) market (a submarket of MBS) that would be threatened by a bad guarantee, weak FHFA, or poor governance of the GSEs;
3. The GSEs’ portfolios should be used for charter duties only and not opportunistic investing as they did pre-2008; and
4. A market utility, as proposed by NAR and Andrew Davidson & Co, solves these issues, maintains private capital/innovation/accountability, protects taxpayers, and supports consumers/homeownership.

For additional information, please contact Ken Fears at [email protected] or Matt Emery at [email protected].