The Obama administration in January postponed announcing its GSE reform proposals. Experts said that the root cause of the delay is the fear of further disrupting the already fragile housing market, as Nora Colomer points out in this month's cover story.
But avoiding GSE reform only kicks the can down the field.
As Paul Jablansky, managing director at RBS, aptly said: "No one wants to be the one who resolves the GSEs at the expense of setting back housing recovery."
For those in the ABS industry, the crux of the issue is this: With the government via Fannie Mae and Freddie Mac hogging mortgage securitizations, there is no real push to revive the private-label RMBS market.
Of course, it's also all about the bottom line. Agency paper still provides better execution versus private-label transactions. And without the higher interest rates, the profit margins for private-label mortgage originators are not as attractive.
Without an active private-label market as an alternative, Fannie Mae and Freddie Mac are here to stay, at least for now. Even if these agencies were to go away, it would likely be a slow death.
After all, experts say that transitioning $5 trillion of risk, which these entities represent, can't be rushed, and will likely need several private channels for an orderly and successful switch.
There's a lot invested in righting the housing market. In the securitization realm, that would mean saving many RMBS transactions from downgrade.
John Hintze, for instance, talks specifically about the problems in re-REMIC deals. This sector recently took a beating when all the rating agencies issued warnings about the sector. DBRS specifically said that the prolonged negative trend in the housing market is a factor that has significantly contributed to the increased default expectations for the seasoned vintages.
But what does it take to get it right? There are various solutions being floated around, most of which still require some involvement by the government in the U.S. mortgage market, according to Nora's other story on the GSEs.
One of them is letting the private sector price risk in mortgage loans while the government acts only as a credit intermediary.
If it's any consolation, Mexico's also having trouble reviving issuing in private-label RMBS. Once dominated by private-sector nonbank originators known as Sofoles, in this post-crisis climate only banks can tap the market, as the Sofoles are struggling just to stay afloat. The bulk of RMBS is now coming from GSE-like agencies Infonavit and Fovissste. In a story on Infonavit, Felipe Ossa details the agency's issuance plans for this year, which feature a more active role for a particular kind of RMBS that targets higher-income borrowers.
Felipe also has a lengthy discussion with Noel Edison from the European Bank of Reconstruction and Development. Edison's championing of ABS as a way to help EBRD's clients to develop should be heartening, especially to those of us who feel that good news in our world is still too few and far between.
Karen Sibayan, Editor