Yesterday, we addressed the broad market impact of the systemic mortgage-servicing standards now irrefutably on the way from the FSOC. Today, we turn to what this means for Fannie Mae and Freddie Mac. In the near term, the key issue for the GSEs remains losses due to prolonged pre-foreclosure negotiations, losses we expect to be only modestly offset by put-back recoveries. Over time, the servicing rewrite could so significantly alter profitability in this arena that securitization is sharply reduced for all but the highest-risk loans.

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