WASHINGTON, DC-After weighing a plan put forth by the Federal Housing Finance Association (FHFA) in July to establish a framework for conservatorship and receivership for Fannie Mae, Freddie Mac and the Federal Home Loan Banks, industry groups such as the Mortgage Bankers Association (MBA) are responding--with more questions and requests for greater clarity.

Namely, the MBA has issued a detailed response that points out what it perceives to be three limitations to the FHFA’s proposal. In a seven-page letter sent to the FHFA, CEO John Courson and MBA chairman-elect Michael Berman noted that: the agency’s proposal is overly theoretical in its approach, it sheds no light on what would ultimately trigger placing the firms into receivership and eventually liquidation it doesn’t specify its goals in receivership.

Point number two has been seized upon in some media accounts, which trumpet it as the association’s call to push the GSEs into receivership--no doubt to the MBA’s dismay. The MBA did not return a call to GlobeSt.com in time for publication.

In a way it is easy to understand how this misunderstanding happened. The MBA makes some pointed suggestions for the GSEs if they ever do enter receivership. “The MBA believes FHFA should articulate its own receivership policy, such as whether it will follow a least-cost model or a different strategy whereby the direct return to the taxpayers might be lower,” it says in its letter.

As for what would trigger receivership, the MBA did not pull many punches. The only reason Fannie Mae and Freddie Mac have not yet been put into receivership, it essentially said, is that the Treasury is footing the bill. “The current situation is not unlike a brain dead patient who is being kept alive indefinitely by artificial life support,” Courson and Berman wrote. “Absent some unforeseen event, the timing of when the doctors finally pull the plug can seem somewhat arbitrary.” Similarly, they continue, absent objective and transparent criteria of when the FHFA will pull the plug, the timing of any move to put Fannie Mae and Freddie Mac into receivership will appear to be just as arbitrary.

MBA even suggests what that triggering criteria might be:

• The form of the new secondary market entities has been agreed on;

• The transition plan for moving toward the new system has been agreed upon and the degree to which receivership factors into that plan; or

• The point at which the costs maintaining the conservatorship are greater than the costs of operating under a receivership plan, relative to the benefits of each structure.

The goal of this exercise, Courson and Berman wrote, is to deliver as much transparency as possible to the market. “Past operating practices and norms do not provide an adequate guide for two reasons. First, this is a unique situation with little historical precedent. Second, nearly every action the FHFA and the enterprises take would have a financial impact on counterparties and different creditors.”

They have a point, Sam Chandan, chief global economist and executive vice president with Real Capital Analytics, tells GlobeSt.com. The FHFA’s proposal improves on the current framework by defining some terms of the conservatorship with greater transparency, he says. “But these improvements are on the margin.” The proposal has been rightly faulted for not including an explicit trigger for receivership, he continues. “This is not a situation that can be easily compared with a failed bank or thrift and a relatively simple least-cost resolution rule. Conditions in the housing market remain extraordinarily weak, requiring that policymakers maintain a degree of flexibility in the timing and execution of disruptive changes.”

Of course, we are all seeking a clear and consistent message from Washington with regard to the exit strategy for the conservatorship, Chandan concludes. “But the FHFA, in isolation, does not have the exclusive mandate to define parts of that strategy in its rulemaking activities.”