Transcripts For CSPAN3 Urban Institute Discussion On Government-Sponsored Enterprises - Panel 1 20240714

Event, and thanks sponsoring, i should say, and thanks to all the folks at urban who helped to put this on. As you can imagine, an event of this size is neither inexpensive nor easy to pull off, so thanks, everybody, for the help. Tonight well have two panels that will run until roughly 7 45 and then well have another reception until about 8 15, plus or minus. Ill say a few words to sort of tie the thinking behind the two panels together, and then well wade right in to the first panel. But again, thank you guys for coming, for braving the heat and the 5 00 traffic. This is a fun way to kick off the urban space. I will note that the picture behind the title is unintentionally ironic. We say administrative reform. We mean that which can be done without the help of the building behind it, so keep that in mind as you hear us. So for the last 10 years of debate over Housing Finance reform, much of the focus has been on how to reduce the dominance of fannie and freddie in the system. So whether its talk about wanting it down which is where the discussion starrted a decad ago, or whether its talks of merging them into an entity of some sort, whether its a Government Entity or utility of some sort, or spinning them back out into the private market but with month competition, almost everybody, with some exceptions, has been focused on ways in which you can deal with what many have viewed as sort of a central problem in the system which is this too big to fail dynamic at its core, so thats what were going to focus on tonight. Were really going to focus on it across two dimensions which i think of as sort of the twin pillars of the dominance of the gscs over the decades. The first is in ownership and management of the infrastructure that binds the primary market with the secondary market, and the second is the assumption of the lions share of credit risk in the system. Were going to focus on it not legislatively, which is how we tend to talk about this in the last decade or so, but administratively. What is it that can be done without the help of the folks pictured behind us . What is it that the treasury and faa can do to take us down that road . So thats a question well ask over the course of the two panels. But ill note one thing before we wade into the first of these two discussions thats worth noting, theres been a lot of focus and attention in the last couple months on administrative reform, since mike has taken over fefa, but interestingly, the focus has been more on what it takes to get fannie and freddie out of conservativeship and a lot less of what were talking about today. So a lot of focus on how to reduce fannie and freddie and what it will take to get them both out again. So well be talking about how those two themes talk about each other, in a way. Is it the case that reducing their dominance is in a sense of a necessary condition for proudly reapprising them. Is there something about fannie and freddie that they need this system to work . When i think about reform, i think its a tricky one, but it will be interesting to hear, over the course of six conversations. Ly fannie and freddie, they sort of run parallel and theyll have to be dissolved, i think. Policymakers struggle where to go next. With that as a backdrop, we move to the first fs in the secondary markets and beverage a really. First weve got ed demarco who was the first director of conserve toco conservativ conservativeship. And youve got eric kaplan who is the director of central markets at milken institute. To his left you have mare maren kasper, another gnc who is in charge of the very infrastructure were talking about. Then all the way down at the end, we have mark zandi who many of you may know as a commentator going back on these issues a decadeplus who is now chief economist at moodys. So thank you guys for being here. Lets start by describing exactly how the system today works. A lot of folks in this room know it pretty well, so apologies, but there is a fairly lot of misunderstanding of how the nuts and bolts work today. Its fair to clear that up a little bit before we talk about where we should go from here. Ed, talk about how fannie and freddie are involved in this. Its interesting, because it goes back to 1958 when fannie and freddie were created. That was point, the government had created this mortgage, and fannie mae was supposed to be the entity that expanded the capacity, the market availability for investing in these fha mortgages. They were supposed to buy these fha mortgages in plapsz brp the kunlt was sad. 15year amortizing of mortgages. Fastforward to now, thats marl help orchestrate and manage a secondary Mortgage Market that permits a homeowner anywhere in the country thats getting a mortgage to buy a house get it from a local or International Lender and wait until it collects from Global Schools of capital to be able to invest in those, but the in. These individual loans have to be aggregated so that you get not a single transaction. Many loans are put together in a pool so now youre start to ing get there. The manufacture and production of a security that an investor can purchase and know that the cash flows that are coming off from that homebuyer get paid through to that investor, so there is the securitization function. Then the third function thats really important is the credit intermediation. A mortgage is two risks. Its got information risk and credit risk. Well, the investor is holding the information risk, but fannie and freddie have maintained all of the credit risk, so the lender doesnt feel it. Similar go on. You have to have an instructor to secure ties. Thats the infrastructure in which they operate and fannie and freddie do all three of those things, they operate, they secu securetize and add the credit guarantee. Some of those functions are also available in the private market. The ago gregation of private los are run by them also. The preconservatorship, they run it. We have ways of bringing other mediaries in for accreditation. Why do we care . If youre a consumer, a taxpayer, youre worried about the Financial Stability of the system, what function does this serve other than moving liquidity around the market . What it does is it opens up the pool of investors that actually want to invest in these mortgages. You go beyond the banks that are operating in that consumers community, it opens it literally into the Global Capital market, so you have a much broader pool of investors. That makes the market deeper and more liquid. For the consumer it means the Mortgage Rate is lower. Thats the benefit for the consumer. For the taxpayer, its a little more of a complicated issue, right, because where that credit risk goes and how much capital is there is the question, and the reason being there wasnt enough capitol for the two to sustain credit causes. Marilyn, you guys do, in some respects, something very similar. You do it a little differently than ed has explained for fannie and freddie. Can you explain whats different about how you guys do this . Sure. At a very high level, a lot of it fields quite similar. I think the nuances of where its different or where we spend most of our time and our attention, so i think theyre important as to where we are different from the jscs. The first thing thats different is the borrower were serving. We are serving the borrow served by the federal loan program, so the fda and the fha. Thats important for a couple reasons. One, were not setting the credit standards, so were takers of the loan programs in the federal government. So theyre setting the credit standards, they are foirsresett the security that well have. That means that theyre bearing more risk and theyre continuing to have greater obligations than the gse model. And this is because gne doesnt use their balancing sheet like we do. That is an important nuance. Particular fmt time of stress recall, so where the federal loans are going by the credit risk. Thats really important because thats something we continue to talk about and grapple with is the shift of the nonbanks may have more interest than we do. That creates a need for us to continue to look at the system a little bit differently. The gse, its about a 5050 split. We feel it greater in the government side than in the gses. And thats important, because when anish uhre fails for ginny, its tch it mopart of that. When we have an issue of failure, we feel it more at ginny than i would say and why we continued to be evolved therely the last one which was created when fannie was sold to the private market to make money for the vietnam war and ginny was created then. We all know the history of the guarantee and why we are even here today. Those are the primary differences of who we are serving. How we use our Balance Sheet and thereby how we work the lisk is a little bit different. It goes to all the investors around the world. I think of the Fannie Freddie model as a guarantor mall. Lenders are selling their loan into a challe lly. They hold the ins or the pool loans. Theyre able to take that kachtal and. Thats right, although i would say in a time of stress, where thei issuer is making a payment and theyre getting reimbursed by the bank, there is a time lag there. Otherwise theyre going to buy that loan in 120 days and its off the servicers books. Yes, thats true, but thats often what were spending our time thinking of, the kpecht for in times of stress that its more important that engine knee may. That is youre connect the in some sense with International Investors which is lowering the cost of mortgage for those doors. So its a crosssection of the folks that benefit from it. Cannotexactly. Thats sort of the basics of how the infrastructure part works. Mark, whats the problem . It sounds like youve got a longstanding infrastructure that connects up, as we said, investors all over the world with borrowers. The borrowers might be while morph ablg assessly . Whats there to fix . Thank you, zchlt i went back and wrote on your paper that you wrote on the securely toizati toizationly. It explains things very nicely and has held up very well after the twlools there are two fundamental problems with the framework. First, it gives fannie mae and freddie mac power between the learned and the investor, and it gives them significant control of all of the parties in the Mortgage Finance system, the echo system. Benevolent lender, no problem, but they are given a swath of things. The preconserv ativ e tie was able to get discounts. The conservator, its no big deal, but theyre there and if these Financial Institutions are privatized in some future system, that would be a concern, that would be an issue, the significant market power that they have. The second issue and not unrelated, second fundamental problem is too big to fail. These are pipes that are critical to the mortgage loans, making sure our houses are working, and therefore, the economy is working. These are institutions with over 5 trillion in mortgages that they guarantee outstanding, so these are very important institutions. The fact that they control the process, the infrastructure, makes them too big to fail. Many. Thats something i think everyone chld let me just say, on the zin side, and i think you did a good job. Fa afrks put ark faa was pout to avoid credit by homebuyers. But another reason it was sent to the problem be, because this is the best way for the government to issue into the housing market. Its done an amazingly good job. There was the puppy assemblies and the urpgs sdc are volume in the boom times when the private level margin is doing so well. Probably twothirds of all the credit risk was being taken. So it filled the void but it can only fill the void because the lenders were silent counterparts. As you said, most of them were the large banks, jp morgan, oeld, that model has been upended, so you have a lot of nonbank. Its not that if they fail, the world comes to an ernld. Soly you can see that get cut off in a risk hifr off off environment and jma cant play the rule that its goo sochlt, the reason why the market distorting and too big to fail problem that you point out for fannie and freddie isnt a problem for ginny, i take it, is that engine knee mpl ginny. Thats precisely why its not an issue for fannie and freddie. That means something happens with fannie mae and freddie mpld. Where does that line nup that kind of world rkt and krk sp, then we ever too many big funnelled mental problems. Ed, when you were at fa tarks which came to be known as the csp, dhhig i take it were aud r addressed some of the plans were making. Authors to your thinking when you came up with the idea and when you go in the conservatorship. Where with you going with this . We need to give the public, the lawmakers, the country itself some sense of why are we going . As mike pointed out, one of the things that happened in 2008 when fannie and freddie were put into conserva torqutorship. If the company had no operating infrastructure for a second meeting, and as part of the massive sem i can event so theyre curve in plin. Three years. Ly. Youre relying on a being. We looked at the underlying infrastructure, the tech nothing and so noort annie and freddy were operating, and neither of them were really robust enough to be a go foilt. This is the one making news, right . We said neither one of these is Strong Enough to build on. I said, if we renld this wall, theyre is koso lets build it a way that its an infrastructure that congress could build upon and markets could build upon. We conceived with the common securitization platform. I went back severen, but i went fwhak my own work and said what was i thinking severen years ago . I said it was just about the security civilization platform. We talked about what does it mean to rebuild an infrastructure. We talked about, you know, the data standardization. We talked about document repositories and standardization of the trust agreement and how that would be done. We also talked about this being a necessary step not just for fannie and freddie but in the market itself. If we were to bring back a targeted sberns. He says, were starting a crash and, start sgopg remember. Inconserve tore strp. What we conceived was to set up this common commuter so they were both directly participating. But we were quite clear from the beginning, and our vision was that would gl congress could dispose of in the audly nfltd this is the moment from the taxpayer to realize we need to make it if were going to build this platform. This was really about creating a goto infrastructure the market could build on. The last couple points about it. We really expected there to be a lot of private sector engagement in the development of it. We talked a lot about having an open architecture for it so that we were using technology that was available in the private sector or things were not going to be built proprietary. We wanted them to use the systems that were available, and we were very clear we wanted this infrastructure to have the potential of being available not just for fannie and freddie securitization or whatever followed them in that space, we wanted them available for other transactions as well. That would aid and abet the goal of getting standardization in the market, whether it was the conservative space or the jumbo space. Thats what we were really seeking to do when we launched this process in 2012. So there is a delta between where we are and that vision, right . So next week were going to issue the single security, knock on wood. Hope that all goes well. It will be a security for fannie and freddie, and it seems to have been built in a way thats going to mandate the security structure of those two institutions. Can you talk a little bit r just at high level. We need to find out where we are and where wert vision thats laid out. Its something we talked about in that report and its a maench step forward for the market. It has been developed over the last five years as really aidly there is a possibility for this to be leveraged in the future, and i suspect a new director is going to want to take a look at that. But the other thing thats happened along with the development of this platform is that ginny mae has made big strides in theirs as well. So i think i have two to look at that may be showing us what the fred each have to offer is Still Available for the future housing project. I want to talk about how the csp might be expanded and what it can do, and then i want to talk about how it could be expanded and who can use it. First, lets do what it can do. So, mark, and then, erica, i want to hear who can expand the market it serves, in a way. Mark, if were looking at all the various functions and infrastructures, if you will, underwriting, there are a lot host of things that fannie and freddie do today that at least potentially could be seen as managing the infrastructure were talking about. At least at a conceptual level, setting aside the practical challenges for a moment, because were on a panel and get to do that, if youre trying to figure out what bucket, the csp bucket or the private bucket, whats the conceptual framework you use to decide what this csp is supposed to do once its baked and thought out . Right, right. I think there is a few criteria. This is maybe in no order of importance, just what comes to mind. Im thinking of this in the concept of fannie mae and freddie mac being outside the private world. I think enabling competition, that things should go into the platform that would facilitate competition to fannie mae and freddie mac to address the concern of market power and too big to fail. You know, competition is an element of many reform plans. Corker warner plan, the janet krako plan, a number of different plans have this feature for allowing for competition in the system, and for that examinaticompetition t it has to be that those who take credit risks entering the system need to be able to use the platform in a way that facilitates their entry. So those things, those kind of activities that are necessary for a guarantor to enter in should be in the platform. The basic functions, the basic things we talk about, it might also be master servicing. You might put master servicing in the criteria because that is a lot of moving parts there. Highfixed costs, barrier to entry. If its on the platform, it lowers the barrier for entry. Thats criteria number 1. Criteria number 2 might be something that ed talked about a couple times, standardization. We want to improve liquidity in the system of t. The most obvious thing is data. You want a data standardization. The same kinds of data go into the pipes, the same kind of data come out of the pipes. Everyone is doing the same thing so you dont have this complicated mess of information and data, and thats a barriered entry. Its a more transparent system, less opaque. Then finally the third thing, this might be a little more controversial, and its sinking a little further ahead, is things that facilitate the regulatory process. So, for example, we may want things on the platform that help with crosssubsidization, because were thinking about not getting crosssubsidizing now and theyre forced crosssubsidizing. There is a fee charged to all borrowers but how is that money deployed to improve access to underserved groups, minority groups and lowincome groups. The platform could be a way of doing that. Or the qm issue. So the qm is like front and center. How are we going to address the patch issue that by 2021 becomes a real problem. You could put an underwriting system on the platform that allows for the ability of all participants to see what kind of fault risk was created by pulling all the different. They can reside on the platform and thats the reason why it you want to make sure you have a level Playing Field. More than fannie mae and freddie mac out there competing with one another, how are we going to ensure that nobody is picking off high parts of the system and leaving other parts unserved. At least we have the data to understand. One of the key trirt for deciding whoog goes only and we want to meet these goals that we all feel we want to achieve. Tlas whole lot there. Theres no, like gong show type show. The standardization piece of it brings me to eric. Weve been talking about the agencybacked government this entire discussion. Weve been focusing on how a platform might help us deal with some of the infrastructure issues we face within the Government Back to sort of part of the market, but marks point about standardization sure does make it feel like there is a value there on the nonagency space. That is, it feels like sort of the disconnect betweeni issuers and buyers have kind of slowed. Is there a value here in thinking about the csp or infrastructure generallily when thinking about may not p just pls but some market snenl recally. Mark, you gave me a motion that normally i would jump in and boil. There is a lot but hopefully well get back to some of those. I want to go to something ed said in 2012 when you were actor of the csa. There was a tool for the money market. In 2015 that shifted and the next director was tied just to fannie and freddie. It was going to be built just to accommodate the fannie and freddie systems with an eye to approximate terribly opening up the market. But that was a fundamental shift, a true fundamental shift. It wasnt lost, i dont think, on either side of the aisle, certainly not from those in different legislative efforts supported this turn back to a larger second mortgage utility. There is a quote, and the quote from 2015 is as follows. We believe it would be a mistake to develop a csp that was compatible with only the infrastructure of the enterprises. The csp could be an important tool for recognizing inactivity but only if private users can use the csp. We hope yoully Pay Attention to this concern or issue it. That was a warning from director watt. This notion of creating a scaleable Second Market utility, many share it across the board. At that time we know, even as now, the private label market is very slow in the uptake, as you say. Balance sheets have picked up a lot of the slack. Weve gone from nine or nine and a half mortgages out of every ten in the few years after crisis. Thats still an Agency Governmentdominated tm. Up until this year, leeshlts. That it is part fortunate prime jumbo. Most of prime jumbo has gone to Balance Sheets. There is a new model. There have been many improvements in pls relative to precrisis transactions. A little more standardization across the board, but even in the prime jumbo platforms that open up that market, there were differences. And whether it was due to economics or lack of standardization, you didnt get the kind of participation from investors that you would need in order to support a market of size. Thats one of the key factors about any kind of gse or Housing Finance reform. If you shrink the fse finance footpri footprint, they have to go to where theyve got to go to pls. Weve seen a labor market go from about 50 to 20 billion. My view of what the csp could be for the nonagency market. Prime jumbo and prime nonqm, the i. M. To the millionaire who just missed market. Those plos generally remain the same, but the expanded mbos now out in the market, but investors have said they wont participate in this market because they dont feel like their rights to investors are protected. They expose investors to, even p precursors aren for these investors. So they may not be available anymore to investors in those deals. I dont blame themly, theyre just allowing the market to do what its supposed to do. When you look, though, at a market of size, youll need the investor to come in in order to support that market. Once the economics are there, if you get more competition in the nonagency channel versus the Agency Government channel, those investors have still made it clear theyre not going to be coming because of the lack of standardization and lack of best practices. I think it could support a nonagency channel which i think swreld continued to explore had we not taken the vacation but twhaurnl sorks best practices, best disclosures when it comes to practices, and particularly enforcement. I would only do it, at least in my view of it, for qualified mortgages. So i think of this in the way if you have qualified mortgages so loans that have a presumption of the ability to pay, they are less risky. And best practices in your securitization, you can look to the gses for the practices and you can look to the work of various groups,ly you can come over the slate of best practices which goes tore account as ability. So that they were not wearing losses for breaches that werent detected or enforced. They would not wear lots for servicing errors. So for servicing errors. For servicing errors. S for servicing errors. S for servicing errors. E for servicing errors. S for servicing errors. So that i think of in terms of quality security. You have the gps that solves the wills for precrisis deals. If you put that together, there would still be a cost to the buildout but i think the benefit you could get from that channel would be greater participation, particularly from smaller or mediumsized lenders. They would have an option besides Holding Sales to bring the loans to the platform for securitization, either their own collateral or you think of a sort of multiissuer format, and i think the economies of scale you would pick up and the greater credit enhancement and the greater participation by investors who would now come into the market would pay for the increased cost. Are investors going to come into that space because theyre getting something from the csp channel theyre not getting from current deals . Is that the way to think about it . It sounds like you have to get demand to go down that channel to attract pullthrough. Why is the demand going to go there when its not already in the spoke channels . I think its something of a if you build it they will come element. We always know the economics have to be there. Without the economics, investor, for better standards, because relative value is there for the investors. In the market. So theyre not clamoring. And they can pick up mortgage credit the other way. Or through other channels. Through home loan acquisitions. Threw platforms. Even nonqh platforms. Many Institutional Investors have set up, and it is in the so much scale right now, that those, those platforms cant handle the size. But in a market that goes from, even now what i consider to be something of a Tipping Point 25 to 350 billion, up to something that would be 1250 50 to 200 billion, you will need that investigation. And once investors see that it is there for them. Lets talk about the difference of a delta, the only of a home loan and the owner of an pls. If you have a home loan, you have all sorts of things on hand to make your rights are protected. So look at the pls, in the expanded nonqm and ask how are my rights not protected . Where am i exposed to losses that i can otherwise not wear and thats the difference that i do think could be built into the csp, or at least certainly, we can investigate it, in order to create that kind of security, that i do think will bring them. Got it. Yes . Can i jump in on this . Yes, sure. So eric is raising a bunch of really important concerns, and since overall, the topic here is about administrative, you know, reform, and changes, sometimes we can get a little fixated on just administrative reform and what does it mean, and erics raising is we really want to bring a private market, we want to have a private channel, private execution, there are some things that need to be addressed there, and you know, i like to build a couple more ideas here, in terms of, you know, administrative reforms that regulators could take that would actually facilitate this, and i think part of it is it is what is leading to this much smaller pls base, so one is qm, right . Eric touched on it, but the qm rule, the way it works, severely tilts this Playing Field towards fanny and freddy, and not just that, it makes everybody very skittish about nonqm activity, you know, these can be really good loans. So i think redoing the qm rule, to replace this gsc patch, of 43 dti and so forth, that leads to all of the problems with that, and have a qm rule that has a bright line safe harbor that works the same, in the gse and the nongse space is a very important step. Second if we expand the pool of investor capital, we got to get registered deals. All of the pls being done now is being done by private placement and if were going to get registered deals so we broaden the pool of investors, the s. E. C. s got to take a look at regulatory, and look at the sfwloeshs. The markets cant do it. It is a regulation that cant be accomplished the way it is written and it makes it enormously expensive and challenging. We can bring some standardization here, looking at what the gscs disclose under crt, but look, look at also these private placement deal, 144a deals that are being done, as a baseline for looking at the kind of information investors want. We can get that disclosure rule addressed, and i think that that also would help broaden the participant pool, the investor pool here, and then the final thing, if you want investors coming in, and bearing, you know, put capital up broadly in the Mortgage Market, replacing taxpayers, those investors have got to have data and they got to have information about the market. They got to have historical data, and there is such a concentration of historical Loan Performance data and appraisal performance data locked inside fannie mae and freddie mac and if you want to make this Capital Market more vibrant and investors more confident about replacing taxpayers, theyve got to make more Information Available to them. So i think all of that builds, i think. And a couple of things. Look, the qm impact, if the qualified mortgage rule is supposed be about credit, which to me, you go back and read what the cfpb issued when it promulgated the rule it should not be channel dependent, a loan what is credit worthy in nonagency, if you all of a sudden shifted to the gsc, it doesnt change the credit, you changed the channel and you changed the definition. The same thing with with fha and v. A. And that was statutorily granted. One of the differences that mark talked about, fha and v. A. And guinea, theyre public entities, Government Entities and they operate on behalf of the Housing Finance system. Fan yeah and fred yeah, i dont say this pe jurortively, theyre entity, if you look at the data that just came out combined unless they have done the math wrong which is possible. Combined number nine in revenue and number five in profits, combined. And i dont fault them for that. This is what they do. They are supposed to be profitseeking companies. You wouldnt give the stamp of law to an entity, and to any other private entity, and effectively thats what youve done with the gscs and it made sense at the time, and ed, you were there, right it was supposed to settle the market and wind its way out and now we see it does continue to enhance the marks there, that they have, and so to me, i would like to get back to a one definition that applies across the board, because it should be loans let me summarize what some of these things that are coming down here. So one of the challenges to the initial crist six of having private institutions own and manage this Critical Infrastructure is theyre the standard set, or theyre in essence setting the rules for an enormous part of the market which is itself problematic for the sort of reasons that mark mentioned but it also creates a whole bunch of unevenness across the market. Youve got different disclosure requirements. Youve got different data being released. Its opened in some markets and not others. Youve got different regulatory treatments from one channel to the next as a good example. It sounds like one of the tunes is one that rethinks the way the infrastructure that connects primary and secondary market up generally across all of these channel, one of the opportunities is to think about it as a singular infrastructure, set of infrastructures, which have at least a consistent, if not singular set of, you know, regulations that address the rules of the road, disclosures, and all the rest, so it feels like there is an opportunity to clean a lot of this, these idiosyncrasies up, across these different channels, so to come back something ed had said, which is more structural in nature, given that you guys are doing not the same thing that fannie and freddie are doing but something very comparable and do you see something syncing the two channels up a little bit or leveraging something of what has been done infrastructurewise over the last couple of years, how do we think about these two channels long run sort inform parallel with a little bit of attention given to each other, but not, you know, not synced up really. Right. Good question. And i think a lot of the, a lot of the answer to that was, with policy makers, and i think, you know, were in the midst of drafting, an administrative kind of responding to the president ial memo in terms of reform, drafting administrative suggestions, as well as legislative suggestions and a lot of this would fall under the legislative side, it feels to us. And really, the directive is for both hud and treasury is a little bit different. And you know, treasury has a very specific directive in which theyre working on their plan, and ours, were working on given that this is an entire Housing Finance ecosystem and we at both ginnie and fha play an Important Role but i think you bring up a good point, which is should policy makers look it rely on one standard technology. It looks as though we have two that perform similar functions in the market. And i think ed touched on something that probably isnt as well understood as i first thought when i arrived at ginnie is that ginnies technology and our capabilities. I think what is maybe not appreciated by the market is the investment that weve made over the last five to ten years, and i think, in the nuance of that, is a little bit technical. So part of me, ginnie is able to use its revenues to spend on technology and to build the platform, to contract with private parties, to do so, and we do that, and we have a fantastic cio who has been with us, i want to say seven years now and who has led the way on this effort, we often, we often get looped into a hudwise conversation, and we get looped into this hudwide conversation of hud, why would we ever move anything from the private sector, into what would be Government Technology that is stuck in the 1970s. And i think there are some fha folks in the room, and truly, mo offense to them, but theyre subject to the annual appropriations process for the technology investment. So theyre subject to the whims of congress. And where as you can imagine, we are trying to run a 1. 3 trillion insurance portfolio it is very difficult to plan for technological investments when youre not guaranteed that funding. And that has hamstrung the agency. And Brian Montgomery has done a fantastic job dont say anything bad, he is right here. Oh, brian has done an amazing job putting together a plan and they are working on the down placement and they have that technology. That is misunderstanding that our technology is the samed a fha. To be clear, cobalt is an fha problem. That is absolutely right. And weve done, i would say the key summary of the Technology Work that weve done is create and to make sure ha we continue to enhance the platform, such that it is state of the art. I think you could, weve also made sure that it is secure, we, on a monthly basis, in eighthour period, are processing 40 billion of cash in and 40 billion of cash in out in one single day, that needs to be secure and need to make sure it is not subject to cyber threats. We have also done so in a way that is volume agnostic, and the number of issuer agnostic. So we dont really manage, you need to be a certain size, but should we ever double in size again, or quadruple in size as we have done in the last year, ginnie mae would be able to handle such volume and essentially if you want to think of it as a highway with many extras and many onramps, you could merge somebody like the csp or anybody in the technology and obviously there is a bit of a transition period but to the extent that the csp is taxpayer funded, as is ginnie mae, there is probably an argument to be made that the technology is available for the ultimate borrower benefitting from the system so there is probably some work to be done, you know, what is it that the csp platform does today, and that could either, potentially could be better than what ginnie mae is doing or where is on par or where could ginnie mae improve. But i think our capabilities are unparalleled in the market and we have invested a lot in that. There are two other things that i think we talk about when, if anyone is ever asking do you need to play a larger role and i think this is something that is probably worth reiterating, the first is the global brand of ginnie mae. Im not necessarily a brand person, and put a lot behind kind of marketing, but as ive traveled the world, and have interfaced with large pools of capital, all over the world, the ginnie mae brand is not something that should be overlooked, or undervalued, in the market. Investors have Significant Trust in the guininnie mae brand. It is in investor guides all around the world. And that is not something that is easy to replicate. We have 50 years of history of never missing a principal and Interest Payment and it is something that i have come to appreciate in my time at ginnie mae. And the last piece that is kind of the third leg of the stool if you look at technology and the global brand, and i think the other piece here is the process that resides at ginnie mae that managing the entire system, of principal and Interest Payments. We know exactly what to do when principal and interest is not in the account with the investor. We then know exactly ha to do to go back through the system to find out what went wrong and quoteunquote regulate that system. That is something that i think is something that is again built over time, something that is easily overlooked. I dont think it is easily something that you could duplicate, in a quick manner of time, so all of that process is there, for not only managing the bottom, the platform, but managing the counterparties or the issuers or the guarantors that are part of the system. So i think all of those key, three key things are important to remember, should we, you know, talk in the context of csp or a larger role for ginnie. When i think about syncing these infrastructures up, i mean if you came from another country and someone explained to you how our system worked, it would be very hard to rationalize why you got two different highway systems, you know, one of which is owned and managed by this private company, or these private companies that still picks up half the market and the other has the Government Backstop in some respects. And then youve got another highway system that runs right next to it and you sort of see it over the hedge, the government highway system and it is hard to get one from one highway system to the next and you got to get off and back on and it doesnt seem to make much sense and if one believes that ultimately it makes sense to sync these up somehow, it is hard to imagine how do you it, i think, if one of the major highway systems remains owner operated by one trucking company, it seems like implicit in all of this, is that eventually it needs to make it something that functions more like a utility which was what the original idea was and with that in mind, do folks have ideas about what the Ownership Structure should look like in an ideal world . Marren, i want to ask you this question but other folks like eric, what do you think about this . Look, its, you know, in a world where, if we envision greater competition, director, collaborate, he cant do, it which requires congress back to these guys. But he envisions a future where you do have new competitor, the csp has been built in a way, it is under fannie, freddie ownership, how would a new perp come in and attach to that . Just the way it has been built. What would the cost be, is it possible, how would they attach to the umbs. All of this right now can be looked at and needs to be determined because there is two paths as we know, one without congress, and one with congress. So lets focus on administrative. Theres many people out there who feel that in fact, in some bills that were introduced over the last few years, the csp ownership would move away from fannie and freddie and be transferred to a private nonprofit or transferred, become a collective, with payment, right, if we consider taking, or value given for the transfer. And there are so many other elements that would go into that. But it is critical to think that way. Even the infrastructure of the csp, you talked about the aus, he put it, beng put on to the system, that can only be supported by a credit team and technology. Right. And an i. T. Team. In order to keep that alive and active. So the ownership and then the buildout of the csp is something away from fannie and freddie dominance is a critical piece from moving away from just that. Fannie and freddie dominance. So are we talking like cooperative . Are there shareholders to this . Mark, what do you think . I want to answer that question but before i do, i want us to react to the conversation, and just suggest that we should keep our eye on the ball, that you know, we can do many, many different things, were all smart speam, apem and we can al these problems solved and get the ginnie mae with the gsp, and solve Climate Change at the same time, but we need to be focused on you know, what do we need to do to get fannie mae and freddie mac out of conservatorship, into a private system so that taxpayers take less risk but we preserve all of the things we like about the current system. And to do that, i dont think we would prioritize making sure that we, the ginnie mae platform lines up with the gsp platform or worry with pls, most is, im not sure if you get on the platform you will solve perform ls and by the way im moodys, and i love pls but i dont see it. So i just caution that. Nice to think about it, but i would put it low on the priority list. In terms of the ownership, you know, i would argue, if you want to test the private markets, with regard to their appetite for playing a role in the Mortgage Finance system, we should privatize the common securitization platform, we should ipo the csp. That is bitesized. It is not 200 billion in capital. You know, it is a bitesized, very clear, it is a utility, classic utility, it is like water, it is like electricity, you know, its pipes to get from the primary market to the secondary market, and it is shareholder owned. And we just privatize it and see how that works out. If that works out well, that gives us some sense of how we want to move forward with the rest of the system, versus the cham, and if it doesnt work well, well, thats the way to go. Do you have thoughts about ownership at all . If you want to ipo Something Like that, you want to raise private capital, they ought to know what the rules are. Congress is going to have to say first, whats happened to fannie mae and freddie mac and what is the government guarantee, theres got to be a whole bunch of questions that can only be answered by congress before i think you can get meaningful private capital so let me, were running out of time, let me ask a final question that this segues to a little bit. At the beginning, i said that the recent rise in interest, in administrative reform, has been very focused on what to do to get fannie and freddie out of consumerership, with much less focused at least in public on how to reduce the dominance of fanne and preddy. How do we think about those two things . Is there sequencing, is there a sequencing challenge, are they contradictory, how do we think about weaving these two themes together, things we have been talking about up here, and the challenges around, i mean one of the challenges is exactly what you just said, which is how do we think about reprivatizing fannie and freddie in a world we have this existential uncertainty about what the future world looks like, who is going to go and invest in these two institutions that need more money for an ipo that any other institution in the history of the country, if you are worried that congress is going to come in at eight months and nationalize and do whatever Congress Might do, so i see that as being a related challenge in this. But how do we think about the relationship between the two themes . Recap it or, reprivization or constrain them in a way that renders them less of a Systemic Risk of the system. So, look, i mean, i mean the theme is that bringing private capital and getting out of the conservatorship is all about, there are two basic ways that gets done. One is figuring out ways in which capital gets into fanny and freddy, and the other way is to get risk and activity out of fannie and freddie and have existing private Market Participant does this, whether it is mfrmd i. Companies or Pension Funds are wstocks of private capital that are prepared to invest and engage in this market and one of the ways is it get the risk out and make that available. So administratively, there is a lot of things that fhfa can do to create greater opportunity with freddie and fannie in conservatorship or postconservatorship realm that fha is considering now. And i think we need to come back to the pls thing and slightly disagree with mark, i dont think it is secondary, because if what you want to do is shift risk away from fannie and freddie and get activity out there you cant simply assume that the private sector is ready to take it with the rules and regulations as it is today. You got to Pay Attention to what the pathway looks like to bring private capital into and secure the privatization market and i think this are some things that need to be done. So administratively, there are things regulators can do, to enhance this transition. And right now, weve been in a strong economy, we have low unemployment, and the pls market, for what it is, it is working. Right . At its size, it is working. No question about that. And if you talk, we had a good panel the other day at the mba, and you know, we had three of the biggest issuers in their fields up there, and there is a market right now. The key is, and to quote director, collaborator, himself who was quoting someone else, fix the recover when the sun is shining. Were on offense right now and to eds point, we dont want to find ourselves with a run away market and we have a downturn and pls has grown and we havent solved for the issues. We should know enough to go backwards to 2008 especially when the Litigation Landscape will look very different, to me is what mat sers the black or white for the contracts, and what could happen, it goes for the gscs, it goes for the pls, and it seem, i have a hard time under understanding why we cant go back to the shift in 2014 and have these conversations about how to create the utility within the csp for pls. If we get nowhere because there are too many operational challenge, thats fine. But it seems to me the prize is too big and we have enough mechanics in the industry and in government who can try and make a go of that. And now is the time to do it. So that we do have, a, another option, to move away from, if we do shrink the gsc footprint. So let me try to play it back to you within the frame that i opened it with to make sure i got it right. So the idea is the relationship between the conversation route and reprivatizing, and the conversation realm, making sure that we no longer present this sort of systemic two big payer risk that they presented before, is that reducing their dominance in the market is going to be an important precursor to releasing them, into the market, but to do that, youve got to figure out ways to revive a nonavc space to take some of the pressure off fannie and freddie, mark is that the way you see it . I dont. I think the key is reduce tax patient exposure and the question is how best to do that and the most obvious way to do is through the credit Risk Transfer process. That is well trodden. Weve moved down the path. It is highly successful. It is Getting Better by the day. And you know, now, we have third party trusts that allow for issuance that meets various accounting rules. Were getting first loss, being pushed out into the system. So why hit our head against the wall, or try to fix the gscs, the securitization platform to allow for pls which will be a very heavy lift and cost another maybe billion to figure it out and not just pursue the crts and transfer risk out that. And i mean already, you look at the numbers, fannie mae and freddie mac are making 45 of the originations and fannie mae and freddie mac are probably taking about 20 of the credit risk in the system, thats it. And fha 35, and the crc, probably 20, 25. So your answer then, the prediscusser to getting them out is just more crt . More crt. Transfers. Im all on board with reducing taxpayer exposure. Thats the way to go. And its not only Capital Market crt, and insurance and reinsurance and all of the different mechanisms are being used to transfer risk and focus on that and thats the way the private markets are going to take mortgage credit risk, theyre not going to take it through the pls because that is a broken system. Unless a generation from now, you get guys that take over, and because they dont remember what happened, and thats the only way. A generation from now. Yes. And maybe erics young enough that he is forgetting all of this. I go back, if i can. Yes. And he is a disciple of mr. Yes. So i can see what the problem is. Lou is watching at home. Lou feels as i do. I would be the first one to be saying, with the career and among other things, and i would be the first one to say i do not want to see the return of irresponsible pls. I like snore warren and others in her letter, i want to see the return of responsibility pls and just like i want to see the return of possibly crt and anything that is safety and soundless and that goes on a loan level basis, primary marks, secondary markets, from a pls perspective, there are improvements relative to the precrisis deals and we could spend days and hours, i would put everyone to sleep on what is better and that is lacking. The crt, and we will get to that on the next panel, it is effectively pls. It is a sub bond. And by the way, there is one key thing there, right am. The point. And fanny and freddie mac, and most people have faith in their oversight and enforcement panel. And this is one of the key things you can build into the csp. Fanny and freddie have oversight and enforcement panels that you dont have in pls. In pls you have a potentially conflicted holder that is called a controlling holder which is typically the sub bond, the lowest tranche sub bond holder and he had can control the trust. And think back to precrisis, we would be comfortable if countrywide was rin in the psa and control whether or not to review a breach, whether or not to pursue a breach, whether or not to pursue certain loss mitigation all behind closed doors, i have a feeling people would say were not so comfortable with looking backwards. In the crt deal, fannie and freddie make it very clear in their disclosures they would look out for the center of fannie mae and freddie mac and the investors dont have any rights for reresource. And most of the investors, if not all of the investors in crt take comfort that for the most part the incentives of fanny and freddy overlap with their incentives but if you look back at 2008, 9 00, 10 00, that is not always the case. And nothing pejorative about it, they have done a tremendous amount of smart things, but thats one of the features of crt. So in my view of qualified security, i wouldnt do it unless you can build into the csp and maybe have fannie mae and freddie mac to offer it as a service, fee for the infrastructure, and this some of the things that i see, but remember crt also only operating in the gsc channel and we know that the director, collaborator has been very clear that, he is going to take a look at the risk profile of fannie mae and freddie mac and look at the capital lation and may make changes to that as he takes to his role and his time in office progresses. These are the things we need to see. But again, i go back to the point, not to have the conversations now. I just dont understand why we wouldnt have it. Because if we find can cant be done, fine. Again, i dont want to be responsible for it, but havingle conversations is a free option. And final thoughts, anybody, mark, ed, maren . I would just say in terms of administrative reform, i think this administration is pretty committed to doing so, in terms of the entire market ecosystem, even when we alluded to, you know, if were going to make changes at the gscs it shouldnt just fall downhill to the government programs. We need to be really cognizant of that. And i think the reform plan will reflect it. And the answer is in the reform plan. There you go. Thank you very much. Please join in. Thank you. [ applause ] Intelligence Committee hearing examining the public risks posed by deep fake video, technology that alters audio or video, and the product is then passed off as true or original content. And here on cspan 3 at 8 00 p. M. , a judiciary sub Committee Hearing on the impact of online media platforms on the news industry. Witnesses include officials from various news organizations, and media trade association groups. And thats all tonight, on the cspan networks. This weekend, American History tv has live twoday coverage of the annual Gettysburg College Civil War Institute summer conference. Starting saturday, at 8 30 a. M. Eastern, with a discussion on jubil early and the unionist cause of katy shively virginia common welt university. And a look at nat turners rebellion, the combat experience of civil war soldiers Peter Carmichael and then a Panel Discussion on the artifacts of the civil war. Moderated by brian luskey of West Virginia university. And sunday, our live coverage continues at 8 30 a. M. Eastern, with a discussion on preserving Gettysburg National military park. With jennifer murray, of Oklahoma State university. Violence in the civil war, with aaronsheehandean of Louisiana State university. And then a look at the civil war and emancipation in the heart of america, with ed ayers of the university of richmond, followed by a discussion on seeing the conflict through the eyes of leading historians, with gary gallagher, aaron sheehandean, ed ayers, steve barry, and carol rierdon. Watch the annual Gettysburg College, civil war civil institute civil Conference Live this weekend on cspan 3 on American History tv. Oh, do i look forward to running against them. Tuesday, President Trump holds a rally in orlando, florida, initialofficially laun his run for a second term live on cspan 2, online at cspan. Org or listen live on the free cspan radio app. And we return mow to the urban institute discussion on fannie mae and freddie mac. Corporations created by congress, to buy mortgages from Financial Institutions. Up next, a look at the credit risk of their holdings. And how it can be less disrupti disruptive to the market if there is another housing