On Friday, Inside MBS and ABS (for subscribers) featured comments from Karen Petrou following deliberations by the Federal Reserve Bank of New York’s Treasury Market Practices Group. This industry group advises the FRB-NY on factors that drive fixed-income markets so that the central bank can better target its own operations. Given the critical importance of agency paper in QE3, proposals like the single securitization are vital to the FRB — it could stand to lose billions if its holdings of agency MBS lose value as the single securitization is crafted or if markets are otherwise disrupted. In general, market participants support a single securitization, but Inside MBS and ABS reports that they also told the FRB and FHFA to watch the process with great care to avoid accounting-derived losses or other disruptions – problems that would also plague the FRB and thus will surely remain an FHFA concern and lead to a slow transition to the single agency RMBS.
Karen comments on the longer-term policy issues of a single securitization which, in concert with the Common Securitization Platform, raises questions about why there are two GSEs. To be sure, only Congress can restructure the GSEs’ charters. But, the more Fannie and Freddie are combined for all practical purposes, the more the U.S. will have a de facto national mortgage utility, she said.
Our analyses of the GSEs’ fourth-quarter earnings confirm our concern that Fannie and Freddie may well have difficulty making continued contributions to the Treasury, a factor that will exacerbate governmental pressure on them and force still greater consistency in how each of the GSE conservatorships operates in the market. If you would like to discuss this matter with Karen or have other questions, please send an e-mail to info@fedfin.com .