SIFMA Proposes GSE Alignment As Keystone To Reform

The Securities Industry and Financial Markets Association (SIFMA) has offered its vision for reforming the government-sponsored enterprises (GSEs) by recommending that Fannie Mae and Freddie Mac align their operations as much as possible.

In a comment letter filed with the Federal Housing Finance Agency, SIFMA says that the opportunities are available to begin to address the performance differential between the GSEs, with a specific focus on improving the existing ‘cheapest-to-deliver’ securities in each market. This can be done independently of any strategic GSE reform strategic plan and should begin as soon as possible, SIFMA adds, because returns will begin to accrue once this action is undertaken.

Furthermore, SIFMA notes that market performance indicates a crucial gap in the actual and perceived performance and liquidity of the mortgage-backed securities issued by the GSEs. This liquidity differential impacts the overall cost and efficiency of the GSEs' securitization process and their ability to fund mortgage lending optimally, SIFMA observes, adding that alignment will lay the groundwork for efforts to mitigate this performance gap.

In its letter, SIFMA specifically suggests initial focus on the alignment of the following areas: aligning and modernizing the GSEs' infrastructure with similar – or, if possible, identical – interfaces to the lender and investor communities; aligning the GSEs' operations from delivery through pooling and disclosure; having the GSEs follow common deadlines, work plans, and final implementation for new programs and initiatives; aligning the structure of each GSE's securities; addressing the GSEs' credit quality; and addressing how securities exchange programs could be optimally structured.

‘The alignment of the operations of the GSEs will set the stage for the future of both the enterprises and for mortgage finance more broadly,’ says Richard Dorfman, managing director and head of the SIFMA Securitization Group.


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