In this report, we assess the implications for the GSEs and the secondary market of the inter-agency release late last week on mortgage-servicing standards. Much in it reads to us like a defensive tactic regulators released in hopes of less roasting later this week when House FinServ turns to this issue. We doubt the release – general in many respects and non-committal on emerging national servicing standards – will do the trick. However, as we read it, the requirements do put all servicers – not just those recently sanctioned – on notice about the wholesale rewrite of their entire secondary-market operations that must begin forthwith. As a result, we expect securitization (including that for the FHA) to slow, putting still more downward pressure on the mortgage market’s recovery, a problem compounded by the still longer amount of time it will now take servicers finally to foreclose. The GSEs’ losses may be alleviated a bit as errant foreclosures will be forestalled, but we expect ongoing uncertainty to be a potent drag that offsets much of this benefit.

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