We should be heading for a reform which transforms the system into one which is 80% private and only 20% government.
The best place for mortgage credit risk to reside is with the lender who makes the loan in the first place, who should retain significant credit risk “skin in the game” for the life of the loan.
The best we can do to dampen price distortions is to move toward the goal of making the housing finance system 80% private.
Guarantee fees for the GSEs must be calculated to include the cost of capital that would be required for a regulated private financial institution to bear the same credit risk.
Congress should remove Fannie and Freddie’s special government privileges and make them pay for their formerly free Treasury guarantee, turning them from GSEs into normal competitors, and creating a competitive, instead of duopolistic, mortgage securitization market.
The FHLBs should be authorized to form, own and manage a joint subsidiary dedicated to mortgage finance, including securitization and also advancing structures with lender skin in the game, on a national basis.
The bipartisan discussion draft advances the development of fundamental housing finance reform. As it proposes, we need to move toward a system with greater private capital at risk, more competition, and more robust risk distribution to achieve sustainable home finance for the American people.