Although Treasury isn’t despairing of GSE reform this year – indeed, Counsellor Stegman today again called firmly for it – it is also looking for ways to standardize PLS to get the private market up and running.  Stegman says this is necessary to get the reformed system off to a smooth start, but it’s also critical now if the interim GSE wind-down plan Treasury also supports can proceed without doing more damage to an already fragile housing recovery.  Stegman’s PLS cures in our view won’t do the trick – he fails to reconcile the serious capital impediments to investor ability to hold senior PLS tranches, especially in the absence of the vacuum-cleaner appetite for them Fannie and Freddie evinced before the crisis.

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