President Obama spoke last week about necessary changes to the mortgagemarket including the winding down of Fannie Mae and Freddie Mac. The President contended that “private lending should be the backbone of the market.” This would be a far cry from where things stand today, with government-backed mortgages currently representing 90% of residential mortgages underwritten. Roadblocks to a transition to more private sector involvement include a willingness of lenders to take more risk with their own capital and provide more transparency on the individual loans that are bundled into securities. Recent news in Richmond, CA where officials are proposing the use of eminent domain to restructure underwater mortgages within the community is also a hindrance. This action would amount to a restructuring of outstanding debt including a loss of principal and new terms on interest rates and maturities, similar to what would happen in a corporate bond bankruptcy/default. Major mortgage investors Pimco and Blackrock filed a lawsuit last week challenging these actions. What does all this mean to SNW clients with Fannie and Freddie debentures and mortgages in their portfolios? Very little. We have no exposure to the private-label mortgages that would be touched in the Richmond case and current debt backed by Fannie and Freddie will continue to be supported by the government even after a wind-down. We will continue to watch developments in the mortgage space closely but are confident that our client portfolios are well protected from these regulatory shifts.