As the American Securitization Forum comes to a close, the private-label side of the secondary market reached a clear consensus that mortgage servicing is, in fact, really important. The other consensus is that mortgages are going to cost more. More for borrowers, more for originators, more for servicers — and ultimately less yield for investors. This is somewhat of a breakthrough. Mortgage servicing remained largely ignored by the secondary side for so long, and this new desire to work together is indicative of transformation. Booths normally found at the Mortgage Bankers Association are now being constructed at conferences such as the ASF. We are all bleeding together as we recognize we will all have skin in the game. Noticeably absent from the discussion, unfortunately, was a contingency from Fannie Mae and Freddie Mac. Oh they were there, but until Friday’s report from the Treasury is released, spare some blame for lying low. Ginnie Mae‘s president spoke on panels, whereas Fannie Mae sent a director of mortgage-backed securities policy. At any rate, GSE reform is finally beginning to materialize Friday. After creating an environment where these two mortgage behemoths flourish, the government will now lay the framework for reversing that course of action. Not to say that is illogical or unreasonable. It is simply necessary. But here are two things sure to be missing from that report (I hope the soon-to-be released white paper makes me eat these words): The first will be the absence of a clear housing policy. A clear housing policy contributed to the procyclicality of the Great Recession. A clear housing policy would also be necessary to steer us out. Will the promotion of homeownership be tantamount to GSE reformation? If so, then how will the Treasury suggest reversing ever-tightening credit requirements in such a way that will not expose mortgage servicers to greater risks? The role mortgage servicing plays in the housing industry is ever more important as the multitude of flaws in the current system shows how delicate the balance of mortgage markets are. Without housing policy that supplies a clear framework, there is little hope of investor interest in the “new way.” If the government wants out of sponsorship, it will have to implicitly support competition via the private-label market. Therefore, the Treasury report will most likely look to establish a method of mortgage financing that carries a government guarantee as well as a “nonagency” market. Both require clear investor support as outlined above, so I caught up with Ron D’Vari, CEO of New Oak Capital, and a speaker at the ASF. D’Vari reads “housing policy” as a “clear mortgage financing framework.” The two aren’t exactly the same, we agreed. But, it is only if the secondary mortgage markets are solid will housing policy begin to be able to address the need to house those who are most exposed to the current downturn: namely lower-income, at-risk families. “We do believe the securitization of nonagency market is critical but in this case uncertainty in legal framework has contributed to lack of market start,” he said in our talk. In a follow-up e-mail, he outlined the nine points that he feels need to be addressed in order lock-in investor interest after GSE reform begins in earnest. To be clear he was not predicting that any of these will or won’t be included in the report Friday. Rather, he indicated that, at some point, these issues will need to be sorted: 1. General rights and risks in RMBS 2. Chain of title/conveyance of mortgage and how it affects foreclosure process in different states (form, timing, transfer issues, REMIC rules, etc.) 3. Proper servicing standard paradigm and related costs 4. Proper foreclosure process 5. Role and liabilities of trustees 6. Role of investors and what constitutes class 7. Securitization rules 8. Role of GSEs 9. Role of rating agencies “Potentially, if these issues get too complex, larger investors may have to decide to have “customized” and “self-managed” vehicles to access the single-family residential mortgage as an asset class.” Where Ron and I disagree is in the off-balance-sheet treatment of securitization. This represents the second point the Treasury is unlikely to address on Friday. I feel off-balance sheet treatment is necessary to keep securitization as cheap as possible for financing. This is a fundamental aspect. Or at least it used to be. “On-balance-sheet approach is a good aspiration but has its own challenges,” D’Vari said. Even with on-balance-sheet treatment, the U.S. mortgage secondary market is worth $11 trillion. The accounting treatment of these assets will need proper assessment, one way or another. As another ASF speaker said, off-the-record, “all of these things, such as balance-sheet treatment and vendor’s rights, investors thought were resolved already,” he said. His thoughts underpin the ongoing disappointment with negative headline risk rearing its head every 30 days or so. For example, investors never felt they had to consider the different foreclosure processes across separate states. And they don’t want to contemplate it any more today either. The solution in this case is clearly a national framework for distressed asset liquidations. Without this and the above addressed in the Treasury white paper, the likely outcome of the GSEs is the government pulling out of Fannie Mae and Freddie Mac – with the nonagency market being comprised of whatever leftovers are available. Hardly the aim of reform in the first place and hardly a huge shift from the way things are now. Write to Jacob Gaffney. Follow him on Twitter @JacobGaffney.