Congress has taken no action onrnGSE reform so FHFA has taken steps to determine how best it can define its ownrnmission as conservator.  In 2010 DeMarcornidentified loss mitigation as the central purpose along with reducing thernretained portfolios as mandated in the stock purchase agreements with the TreasuryrnDepartment.  By early 2012 this hadrnevolved into the Strategic Plan with a “Build, Contract, Maintain” theme.  The “Build” component included developing arnnew infrastructure for the secondary mortgage market; a need which had becomernclear because implementing new programs was both costly and time, especially asrneach GSE had its own system with its own time frames, costs, and challenges.  With the GSEs still at the center of mortgagernfinance for the foreseeable future it was clear that developing a single systemrnwould be more cost effective than separate systems and it made financial sensernto modernize the structure in a manner that could be used into the future evenrnif the GSEs were no longer around.</p

BAML says therndevelopment of a single securitizationrnplatform does not imply the development of a singlernMBSrnsecurity. The markets andrnthe press came to this conclusion but it is not part of the Strategic Plan, “and inrnfact contradicts the purpose of the Buildrncomponent, in ourrnview.”</p

The bank says that a merger of the GSEs might well bernpart of a reform package from Congress but it is not part of the FHFArnStrategic Plan, and a singlernMBS security is not what FHFArnaims to achieve.</p

The “Contract” goal of the Strategic Plan was aimed at reducing thernretained portfolio and the dominant GSE footprint in the market and is beingrnachieved by slowly raising the guarantee fees to encourage privaternparticipation in the market.  Bringingrnprivate capital back is a bipartisan goal. rnBanks might also decide to retain loans to share in the profits the GSEsrncurrently earn and a single securitization platform could aid in this shift,rnespecially if it allows the GSEs to sell parts of their credit risk. </p

Thern”Maintain” goal representsrnthe core focus on lossrnmitigation and foreclosurernprevention, but also includes creditrnavailability. rnThis may result in an extension ofrnthe HARP expiration date beyondrn31 December 2013.</p

The Alertrnsays that the Build,rnContract, and Maintain sectionsrnofrnthe February 2012 plan have become parts of strategic goals to establishrnstandards for a safer and more efficient housing finance system andrnmaintaining stability, liquidity, and access to mortgage credit.  Thus, disrupting the mortgage market byrneliminating one of the GSE issuers would defy several of these strategic goals</band  the task of buildingrnnew infrastructurernis now explicitly categorized asrnpreparation forrnfuture housing finance, rather thanrna plan to potentially changernor disrupt today'srnmortgage markets.</p