Barclays and Annaly Launch New Research Study, Government-Sponsored Enterprise (GSE) Reform: Unfinished Business
Joint-study discusses steps that the
The authors evaluate the significant evolution of the housing finance market in recent years, including the development of the Credit Risk Transfer (CRT) market. In the commentary, the authors suggest that most policymakers, on either side of the political aisle, seem to agree on three goals related to GSE reform: 1) protecting the US taxpayer; 2) attracting private capital; and 3) creating a more competitive landscape. The first two goals are two sides of the same coin and the study considers steps that the Administration could take unilaterally to achieve them, while the third goal would require the intervention of
“GSE reform is difficult to pull off successfully,” says
“This piece reinforces Annaly’s continued focus on providing market insight on the future of the US mortgage market. As GSE reform continues to take shape, we believe that dedicated private capital creates competition and is an integral part of reform,” said
The key takeaways of the report include:
- A revolving CRT structure could enable the GSEs to shed credit risk on most future production, thereby avoiding execution risk while protecting the taxpayer.
- To attract private capital, the GSEs could shrink their footprint in areas that are not part of their core mandate, such as second homes, investor and jumbo mortgages.
If the goal of GSE reform is to foster competition and materially decrease “too big to fail” risk,
Congresswould have to pass legislation that replaces the GSE duopoly with multiple smaller guarantors.
- Critically, GSE reform legislation must provide a smooth transition path from the current system to an alternative world with more private capital and less governmental involvement.
For more information or to view the full report, please click here.
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