The joint Treasury/HUD report to Congress released this month was a major disappointment to market participants looking for a timely resolution to the status of the GSEs and the future of housing finance. While the white paper claims to lay out "the Administration's plan to reform America's housing finance market," it unfortunately amounts to a set of poorly defined policy options that will likely require years to codify and implement. Moreover, its core assumptions are unrealistic and ultimately border on wishful thinking.

While the paper repeatedly and correctly focuses on the need to restore the role of private capital in the housing finance market, its key pronouncements are incomplete. A key proposal in the section on winding down the GSEs is "to bring in more private capital" by increasing guaranty fees. While higher g-fees will certainly help the private market "compete on a level playing field," it ignores the fact that the private-label markets are currently dormant as a result of a variety of structural factors, some of which stem from recent regulatory and legislative actions such as the Dodd-Frank Act. In fact, elements of Dodd-Frank such as the risk retention requirement and the removal of the rating agencies' liability exemption have created significant roadblocks and uncertainties for private-label MBS issuers; as I noted in February, the continued inability of regulators to issue working guidelines with respect to the scope and form of risk retention is a major impediment to the non-agency market's renewed operation.

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