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The Future of U.S. Housing Finance Reform

Author

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  • Swagel Phillip L.

    (School of Public Policy, University of Maryland)

Abstract

This paper proposes a reform for the U.S. housing finance system in which the private sector is the main supplier of capital for housing, while the U.S. government would provide a secondary guarantee on conforming mortgage-backed securities (MBS). Competition plays a key role, with multiple firms securitizing eligible loans into government-backed MBS, both to help address the problem under which the now-dominant firms of Fannie Mae and Freddie Mac are “too big to fail” and to help ensure that any implicit subsidy from underpriced government insurance flows through to homeowners in the form of lower interest rates. The paper discuss transition steps, including raising the price of the government guarantee, reducing the quantity of insurance offered by the government, narrowing the scope of mortgages eligible for the government insurance, and requiring firms that securitize government-insured MBS to arrange for more private capital in a first-loss position.

Suggested Citation

  • Swagel Phillip L., 2012. "The Future of U.S. Housing Finance Reform," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(3), pages 1-32, October.
    • Handle: RePEc:bpj:bejmac:v:12:y:2012:i:3:p:1-32:n:11
    DOI: 10.1515/1935-1690.110
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    References listed on IDEAS

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    1. repec:aei:rpaper:32621 is not listed on IDEAS
    2. James Vickery & Joshua Wright, 2013. "TBA trading and liquidity in the agency MBS market," Economic Policy Review, Federal Reserve Bank of New York, vol. 19(May), pages 1-18.
    3. Congressional Budget Office, 2010. "Fannie Mae, Freddie Mac, and the Federal Role in the Secondary Mortgage Market," Reports 21992, Congressional Budget Office.
    4. Congressional Budget Office, 2010. "Fannie Mae, Freddie Mac, and the Federal Role in the Secondary Mortgage Market," Reports 21992, Congressional Budget Office.
    5. repec:aei:rpaper:26142 is not listed on IDEAS
    6. repec:aei:rpaper:26125 is not listed on IDEAS
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