Libby
Cantrill,
head
of
public
policy
at


PIMCO,
believes
real
reform
for
the
GSEs
and
shrinking
the
government’s
role
in
housing
finance
would
actually
be
easier
with
Freddie
and
Fannie
under
conservatorship.

“[PIMCO]
would
question
this
fascination
and
obsession
with
releasing
the
GSEs
in
the
first
place
because
we
don’t
understand
what
objectives
it
would
actually
achieve
from
a
policymaker
perspective,”
Cantrill
said.
“In
some
ways,
we
think
that’s
a
solution
in
search
of
a
problem.”

At
the
heart
of
the
issue
for
Cantrill
is
the
idea
that

mortgage-backed
securities
(MBS)
are
viewed
by
some
of
PIMCO’s
clients
as
interchangeable
with

U.S.
Treasury
securities. 

If
the
GSEs
are
released
from
conservatorship
without
an
implicit
or
explicit
guarantee
from
the
federal
government,
it
would
introduce
credit
risk
into
the
MBS
market.
This
would
make
them
them
less
attractive
to
the
type
of
global
investors
who
have
less
risk
appetite,
such
as
sovereign
wealth
funds
and
pension
funds.

In
turn,
this
could
impact
the
level
of
liquidity
for
MBS
pools,
which
then
prompts
the
question
of
how
to
preserve
it
in
the
event
of
significant
policy
changes
around
conservatorship..

“There
are
a
lot
of
good
ideas
on
how
we
can
move
to
other
guarantee
formats,”
said
panelist
Scott
Ulm,
the
CEO
of

ARMOUR
Residential
REIT.
“All
of
them
carry
degrees
of
complication
and
frankly
some
uncertainty.

“A
keystone
of
any
thinking
about
it
has
to
be
how
you
preserve
that
liquidity
and
preserve
the
system
that
we
have,
and
that
is
probably
worth
making
some
compromises.”

The
panelists
believe
the
current
arrangement
for
the
GSEs
works
well
in
a
lot
of
ways,
and
that
any
changes
—
particularly
if
they’re
dramatic
—
need
to
be
done
thoughtfully
and
deliberately.
Releasing
the
GSEs
could
complicate
the
federal
government’s
ability
to
act
in
the
event
of
another
systemic
financial
problem.

The
government
could
make
an
explicit
guarantee
of
mortgage
bonds
if
the
GSEs
are
released,
but
it
would
require
congressional
action
that
the
panelists
think
could
be
difficult
given
the
political
environment.

If
privatizing
the
GSEs
reduces
liquidity,
it
could
also
damage
the

housing
market.

“On
the
liquidity
standpoint,
that’s
just
going
to
mean
rising
costs
to
homeowners
in
the
market
that’s
already
stretched,”
said
Warren
Kornfeld
of


Moody’s
Investors
Service.
“From
an
affordability
standpoint,
take
what
we
have
and
try
to
address
a
couple
of
things
but
not
mess
up
that
liquidity
that
we
have
in
this
very
vibrant
[mortgage]
market.”