A Public Guarantor for Private Profit?
We have assessed the high-profile GSE-reform proposals released yesterday by the Bipartisan Policy Center. The “Public Guarantor” created to succeed the GSEs would backstop private credit enhancers, with the proposal evincing a strong preference for structured enhancement over traditional MI. It would also let private entities take as many roles as they want in the origination/servicing, enhancing/issuance chain, attempting to balance this by requiring tough capital standards for the enhancer, along with transparent pricing, standardized underwriting and put-backs and similar criteria under the regulatory aegis of the Public Guarantor. This entity would be an independent, self-funded government corporation. Importantly, it would not be limited to a backstop catastrophic-risk role, with the proposal allowing the entity to take over the full scope of mortgage securitization under stressed market conditions.
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