KBW Outlines GSE Reform Proposal

http://www.kbw.com]KBW Inc.[/link], a New York-based investment bank that specializes in the financial services sector, has written an open letter to the U.S. Treasury Department, offering its own plan for reform of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. The letter was a response to the Treasury's request for public input. Under KBW's proposal, Fannie Mae and Freddie Mac would be transformed into cooperatives of mortgage lenders, which the firm says would put lender capital at risk ahead of taxpayer capital. "At $145 billion and rising, the GSE bailout will undoubtedly turn out to be far and away the single largest cost to the taxpayer from the recent financial crisis,’ says John G. Duffy, KBW chairman and CEO. Specifically, KBW is recommending a three-step approach that would recapitalize the GSEs using private-sector funding; phase out the GSE portfolio retention activities, except those that support the guarantees of conforming mortgages; and allow for continuity of the securitization process during reform to ensure there is no major disruption in mortgage availability. "In our view, the GSEs play a critical role in U.S. mortgage finance, creating a liquid market for long-dated mortgages preferred by customers but difficult for banks to keep on their balance sheets," Duffy adds. "However, we recognize that the GSEs also played a critical role in the excessive leverage in U.S. housing that precipitated the downturn. As a result, we believe that reform is necessary to ensure that federal policy does not exacerbate future boom and bust cycles." Details of the KBW plan on GSE reform can be found in an open letter to the U.S. Treasury Department, submitted this week, and accessible online at www.kbw.com. SOURCE: [link=http://www.kbw.com]KBW


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