As we noted, FHFA’s new 2020 conservatorship strategic plan and scorecard each demand that Fannie and Freddie conduct a comprehensive CRT review and expand the legacy assets sent off to private risk-takers.  If the review is indeed both comprehensive and eschews the adverse selection that has long characterized CRT, then it will force the first unvarnished look at whether CRT could truly be a through-the-cycle vehicle that absolves the U.S. of the need for giant GSEs.  If CRT is through-the-cycle across the spectrum of what FHFA thinks should be conventional, conforming loans and these loans cover enough of the market to ensure overall credit availability and liquidity under acute stress, then CRT is a viable post-conservatorship strategy.  If it isn’t – and this could well be the case, then policy-makers face two choices:  Fannie and Freddie will have to be turned into utilities or 30-year FRMs will get a gigantic rewrite and large parts of the market may go un- or under-served.

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