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House of Cards: Reforming America's Housing Finance System

House of Cards: Reforming America's Housing Finance System

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This paper assumes the government-sponsored enterprises (GSEs, specifically Fannie Mae and Freddie Mac) are unsustainable; the expected costs they create for U.S. taxpayers far exceed their expected benefits. The question addressed is, then, how to reorganize the U.S. mortgage market in the absence of GSEs. This paper focuses on a specific mortgage-market reform proposal to abolish the GSEs and substitute privatemarket incentives for mortgage originators, securitizers, and investors, while retaining the Federal Housing Administration and U.S. Department of Housing and Urban Development programs that support lower-income and first-time homebuyers. This paper assembles data showing that stable housing and mortgage activity can be sustained with minimal government intervention, including data that demonstrate the success of western European housing and mortgage markets that operate with little government intervention.
This paper assumes the government-sponsored enterprises (GSEs, specifically Fannie Mae and Freddie Mac) are unsustainable; the expected costs they create for U.S. taxpayers far exceed their expected benefits. The question addressed is, then, how to reorganize the U.S. mortgage market in the absence of GSEs. This paper focuses on a specific mortgage-market reform proposal to abolish the GSEs and substitute privatemarket incentives for mortgage originators, securitizers, and investors, while retaining the Federal Housing Administration and U.S. Department of Housing and Urban Development programs that support lower-income and first-time homebuyers. This paper assembles data showing that stable housing and mortgage activity can be sustained with minimal government intervention, including data that demonstrate the success of western European housing and mortgage markets that operate with little government intervention.

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11/14/2013

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HOUSE OF CARDS:Reforming America’sHousing Finance System
MARCH 2012
 
ISBN: 978-0-9836077-1-7Editor: Satya ThallamManaging Editor: Jennifer D. Zambone Assistant Editors: Amy Fontinelle, Victoria Andrew Associate Editors: Emma Elliott, Jordana Starr, Tate WatkinsGraphic Designer: Joanna Andreasson
 
    M    E    R    C    A    T    U    S    C    E    N    T    E    R    A    T    G    E    O    R    G    E    M    A    S    O    N    U    N    I    V    E    R    S    I    T    Y
1
CONTENTS
Foreword | Edward Glaeser 3Summaries 7Editor’s Note | Satya Thallam 11
Figure 1: Home-Price Index (1993–2011)—Seasonally Adjusted
12
Figure 2: Average o Fannie Mae and Freddie Mac Debt Spreads Over 10-Year Treasury 
14Reforming the U.S. Mortgage Market Through Private Market Incentives | Dwight M. Jaee 17
Table 1: The Perormance o European Mortgage Markets Compared with the United States
24
Table 2: Troubled Mortgages in Western Europe and the United States
26
Table 3: Government Mortgage Programs
27
Table 4: 2009 Ratio o Covered Bonds to Residential Mortgages Outstanding
29Two Approaches to GSE Reform | Arnold Kling 37A New Housing Finance System for the United States | Peter J. Wallison 51
Table 1: The Perormance o European Mortgage Markets Compared with the United States
58
Figure 1: Home-Price Index, 1890–2010
59 
Table 2: Outstanding Subprime and Alt-A Loans, 2008
60The Way Forward: U.S. Residential-Mortgage Finance in a Post-GSE World | Lawrence J. White 67The Future of Fannie Mae and Freddie Mac | Michael Lea and Anthony B. Sanders 81
Figure 1: GSE/Federal Home Loan Bank Debt Versus Case Shiller Index Since 1990

82
Table 1: International Mortgage Product Mix: Comparison o Diferent Countriesand Their Mortgage Products
83
Figure 2: Homeownership Rates in the United States, 1965–2012
84Do We Need the 30-Year Fixed-Rate Mortgage? | Michael Lea and Anthony B. Sanders 91
Table 1: Mortgage Pricing
95
Figure 1: House Prices and Mortgage Loan Balance on 30-Year FRM: 5 percent down payment with –1/2 percent decline in house prices per month
96
Figure 2: Mortgage Renance Volume Versus Freddie Mac 30-Year Fixed-Rate Mortgage Rate
97
Table 2: International Mortgage Products
99
Table 3: Troubled Mortgages: Western Europe and the United States
99About the Authors 103

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