Certified Forensic Loan Auditors, LLC

 
  Upcoming Classes

Search CFLA's Article Archive:

Increasing the Role of the Private Sector in Housing Finance

brookings.eduFebruary 26, 2013

In this policy proposal — part of The Hamilton Project's 15 Ways to Rethink the Federal Budget — Phillip Swagel proposes to increase the role of private capital in housing finance improves incentives for risk taking and investment, reduces taxpayer exposure to risk, and fosters competition and innovation in housing finance.

 

Impact

Deficit Reduction (10-year): $134 billion

Broader Benefits: Improves incentives for risk taking and investment in the mortgage market and market for homes; reduces taxpayer exposure to risk; fosters competition and innovation in housing finance.

 

Introduction

This paper proposes reforms of the U.S. housing finance system to increase the role of private capital in funding housing, reduce taxpayer exposure to housing risk, sell off the government stakes in the mortgage finance firms of Fannie Mae and Freddie Mac, and charge appropriate premiums for secondary insurance provided by the U.S. government on housing securities. These measures would generate revenues for the federal government, improve the allocation of capital within the U.S. economy, and focus governmental assistance for affordable housing on those most in need. With reform, private firms would securitize qualifying mortgages into mortgage-backed securities (MBS) and pay for a secondary government guarantee, while considerable private capital would take losses ahead of the government. The U.S. government would support homeownership and access to housing financing, but with transparent subsidies rather than implicit guarantees, better protection for taxpayers, and a clear delineation of the roles of the public and private sectors.

At the center of housing finance reform is an agenda to unwind the conservatorship of Fannie and Freddie that has stabilized these two government-sponsored enterprises (GSEs) since September 2008. Taxpayer support has ensured that mortgages have been available throughout the financial crisis even while other credit markets have been strained, but at a cost to taxpayers of roughly $132 billion so far, including $187.5 billion put into the two firms less $55.2 billion in dividends received (FHFA 2012e).

Moving forward with reform will return some or perhaps a good deal of the money put into Fannie and Freddie to the government, but not necessarily the full amount. Indeed, a key point of this proposal is that actions that maximize the financial return to taxpayers do not align with desirable housing policy. The U.S. Treasury now receives all of the profits of the two GSE firms and might well maximize revenue through an indefinite conservatorship in which private capital is effectively shut out of securitization for government-guaranteed MBS. A reform that brings in private sector competition would not necessarily maximize the value of the government stake in Fannie and Freddie, but it would mean better possibilities for the innovation and beneficial risk taking that go along with private sector incentives. The crisis gave financial innovation a deservedly bad name, but innovation is still valuable in the financial system. This can be seen today: borrowers with imperfect credit histories have trouble obtaining loans, even though low interest rates and the tight rental market mean that monthly mortgage payments for many might be no greater than rent. Housing finance reform that leads to a system with diverse sources of mortgage funding including both guaranteed and nonguaranteed mortgages would provide channels by which private investors can extend mortgage credit to borrowers who are now unable to obtain loans.

Similarly, Fannie and Freddie would be most valuable in a privatization sale if they are allowed to dominate the business of mortgage securitization as in the past rather than face new competition. It would be better policy, however, for reform to foster a system in which new firms can compete in the business of securitization of guaranteed MBS. The (inevitable) underpricing of government insurance gives rise to an implicit subsidy. Competition would help ensure that any such implicit subsidy flows through into lower mortgage rates for homeowners rather than being kept by shareholders and management as in the past when Fannie and Freddie had considerable market power as duopolists. The federal government will not assure any homeowner any particular interest rate. But entry by new firms into securitization and origination will place competitive pressure on banks and securitizing firms that reduces excessive interest rate spreads between yields on MBS and mortgage interest rates paid by homeowners. The importance of competition is illustrated by the present situation in mortgage origination, in which the absence of competition means that low yields on MBS do not fully flow through to reduced mortgage rates for borrowers.

Such a proposal could have a budgetary impact of roughly $134 billion. Any gap between the budgetary recovery and the amount of the bailout will represent the cost of the former housing finance system under which the government provided an implicit guarantee on Fannie and Freddie and thus took on housing risk without proper compensation, while allowing the private shareholders and management to capture part of the benefits of government support for homeownership.

Back to February 2013 Archive

CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

SEE BELOW- http://www.certifiedforensicloanauditors.com

Call us toll free at 888-758-2352

Bookmark and Share
spacer
Facebook Like us on Facebook
Twitter Follow us on Twitter
YouTube View our YouTube Videos
LinkedIn Connect to us on Linkedin
 
BBB Logo

 

spacer
Contact us or view our Sample Documents & Audits by completing the form below.

  • Reload
  • Should be Empty:




 

DVD Sets Only $99

 

FREE Mortgage Fraud Analysis

 

Order Cutting-Edge Services Now

 

Quiet Title Packages from Licensed Attorneys

 

Affiliate Services

 

CFLA Sponsored Attorney Links

 

Take-Home Education Package

 

ALB Law Firm

 

Advocate Legal

 

The True News Network

 

Rubenstein Business Law

 

Atighechi Law Group

 

Scunziano & Associates

 

Get Certified to Perform Mortgage Securitization Audits

 

CFLA Training Academy

 

Expert Witness Services

 

Cutting Edge Expert Securitization Reports

 

CFLA Credit Cards

 

Breaking News

 

Letters to the Editor

 

CFLA Weekly Newsletters

 

Code of Ethics

 

Testimonials

 

Instructional Videos

 

Job Opportunities

 

License Opportunities

 

MARS Rule

 

Product Samples

 

Resource Links

 

Servicer Information

 

Foreclosure Laws

 

REST Report

 

Quiet Title Packages from Licensed Attorneys

 

Advertise on CFLA

 

Advertising Space: Mortgage Securitization, Quiet Title

 

Certified Forensic Loan Auditors, LLC
13101 West Washington Blvd.
Suite 444
Los Angeles, CA 90066

Toll Free: 888-758-CFLA (2352)
Mobile Users: CLICK TO CALL
info@certifiedforensicloanauditors.com

   
 
CFLA IS NOT A LAW FIRM AND DOES NOT PROVIDE ANY LEGAL ADVICE. CFLA DOES NOT OFFER FORECLOSURE CONSULTING OR FORECLOSURE RELIEF
SERVICES. CFLA DOES NOT OFFER OR ASSIST WITH ANY LOAN MODIFICATION SERVICE. CFLA ALWAYS RECOMMENDS THAT CLIENTS RETAIN COMPETENT COUNSEL IN THEIR RESPECTIVE JURISDICTION. CFLA HAS A FREE PROGRAM TO REFER CFLA CLIENTS TO LAW FIRMS IN NEARLY EVERY STATE AND CFLA
DOES NOT CHARGE OR OBTAIN REFERRALS FEES FOR THESE SERVICES. SERVICES NOT OFFERED TO RESIDENTS OF THE STATE OF NEVADA.


     
 
Home About Us Privacy Policy Terms of Service Disclaimer SERVICES Careers Contact Us
 
COPYRIGHT © 2007-2016 Certified Forensic Loan Auditors ™ All rights reserved