In this report, we look at the specifics of the White House housing-finance reform plan and the Administration’s announced intentions for it.  A subsequent report will analyze the plan’s likely market impact and political outlook.

Key now, we think, is to recognize that the White house hasn’t put just Fannie and Freddie on the chopping block.  FHA and the FHLBs are also under the knife, bringing substantial change and renewed private capital quickly into the market if – and only if – all of the agencies involved implement the array of pricing and program changes detailed by the White House.  However, it is clear that the White House will not push stand-alone reform for Fannie and Freddie that would lead to FHA dominance, good news now for private MI and, in the near term, private-label MBS.   In our view, the long-term reform initiative favored by the Obama Administration is the privately-backed MBS with a government catastrophic-risk reinsurance option.  Much work structuring this clearly remains, but it’s the only one of the options on the table that could support a thirty-year fixed-rate mortgage for moderate-income borrowers absent a still larger USG role.

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