Truth be told, there is no reason to have GSEs (IMHO). The only problem I see is that the private market could still misprice risk (keep rates too low) if they buy derivatives that are supposed to mitigate the default risks.
Personally, I don’t like derivatives (full disclosure: I use options from time to time). They have the potential to offer a false sense of security, and cause risk to be mispriced. The counterparty risks are too great for them not to be traded on the open market. They also need a regulator to monitor the health of the issuer and their ability to pay under extreme conditions…IF they are to be used at all.
