In this analysis, we assess a new plan to restructure the GSEs sure not only to be considered by the Obama Treasury if it issues the promised RFI on a “utility” approach, but also and far more importantly in any Democratic Administration to come. We confess up-front to a lack of objectivity about this proposal – it favors a government corporation akin to one we have outlined in prior reports not only for the GSEs, but also FHA and agree that its transitional approach may ease the nation into a privatized GSE-style utility without the shock of the new one that has stymied most other plans. One challenge we foresee – rightly raised in the report as a worry – is the procyclicality of the new structure. This protects taxpayers, but undermines the entity’s market liquidity function. We doubt a counter-cyclical capital buffer will cure for this because we’ve yet to see a proposal for one that works, but a counter-cyclical fee structure could solve for this systemic worry if correctly structured and acceptable to the market.
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