Home / Daily Dose / GSE Reform Must Go Through the Financial Stability Oversight Council
Print This Post Print This Post

GSE Reform Must Go Through the Financial Stability Oversight Council

Everyone agrees that there must be GSE reform, but no one agrees on exactly how it should be accomplished.

Eight of the nine voting members on the Financial Stability Oversight Committee will testify Tuesday before the House Financial Services Committee, and over at The Hill, the argument is made that GSE reform has to run through FSOC. The Hill looks at the gauntlet ahead.

Fannie Mae and Freddie Mac lowered the credit quality standards of the mortgages they securitized. A mortgage-backed security was therefore “worse” during the crisis than in preceding years because the underlying mortgages were generally of poorer quality. This turned a bad mortgage into a worse security. And it turned the undercapitalized Fannie Mae and Freddie Mac into dangers to the financial system.

This made it easy to understand the need to put them in conservatorship, or at least that is how it appeared at the time. Recently, however, there has been a revisionist argument that this was unnecessary that focuses on arcane aspects of cash flows and balance sheet accounting. This misses the key point. Conservatorship was never about Fannie Mae and Freddie Mac, per se. It was about the danger they posed to the larger financial system. Indeed, given the large holdings of agency debt around the globe, any hint of default or haircuts literally put the credibility of the United States on the line.

Read the full story here.

About Author: Staff

x

Check Also

The Industry Pulse: Stern & Eisenberg Adds New Attorney

In this Industry Pulse, get the latest updates on new products from SingleSource and Mid America Mortgage, Inc.'s expanded servicing leadership team.

GET YOUR DAILY DOSE OF DS NEWS

Featuring daily updates on foreclosure, REO, and the secondary market, DS News has the timely and relevant content you need to stay at the top of your game. Get each day’s most important default servicing news and market information delivered directly to your inbox, complimentary, when you subscribe.