Principles of Housing Finance Reform

Principles of Housing Finance Reform

Principles of Housing Finance Reform

Principles of Housing Finance Reform

Synopsis

In the fall of 2008, the world watched in horror as the U.S. housing finance system shattered, triggering a global financial panic and ultimately the Great Recession. Now, nearly a decade later, the long and slow housing recovery has reached a critical moment. Though the housing finance system has stabilized, it remains in the hands of the federal government, leaving taxpayers exposed to the credit risk while private funding remains mostly on the sidelines.

Principles of Housing Finance Reform identifies the changes necessary to modernize the housing finance system, identifying guiding principles that should underlie a rebuilt system. Contributors to the volume set out a wealth of innovative solutions that are possible within this framework, presenting proposals for long-term structural reforms that would infuse new life into the U.S. housing finance system while enhancing long-term stability.

Nearly a decade after the inception of the Great Recession, reform proposals have arisen across the political spectrum. This is a moment of opportunity for rebuilding a key sector of the U.S. economy. The research in this volume represents the best thinking of policy researchers and economic experts on the challenges that lie ahead and provides a roadmap for reforms to create a system characterized by liquidity, stability, access, and sustainability.

Contributors: W. Scott Frame, Meghan Grant, John Griffith, Diana Hancock, Stephanie Heller, Akash Kanojia, Patricia C. Mosser, Kevin A. Park, Wayne Passmore, Roberto G. Quercia, David Scharfstein, Phillip Swagel, Joseph Tracy, Susan M. Wachter, Dale A. Whitman, Mark A. Willis, Joshua Wright.

Excerpt

Susan M. Wachter and Joseph Tracy

In the fall of 2008, the world watched in horror as the U.S. housing finance system shattered, triggering a global financial panic and ultimately the Great Recession. Now, nearly a decade later, the long and slow recovery has reached a critical moment. Though the housing finance system has stabilized, it remains in the hands of the federal government, leaving taxpayers, rather than private capital, largely exposed to the credit risk. Fannie Mae and Freddie Mac—the government-sponsored enterprises (GSEs) responsible for most of the country’s residential mortgage securitization—continue to be held in conservatorship by the Federal Housing Finance Agency (FHFA). Meanwhile, private funding remains mostly on the sidelines, with the source of ongoing financing necessary for sustainable, affordable homeownership still unknown. An eager young generation is unable to access the credit or afford the down payments necessary to successfully transition from renting to owning. This lingering inertia is a critical weakness in the American economy. The system must be rebuilt.

This volume identifies changes necessary to modernize the housing finance system. The chapters lay out a road map for reforms to achieve the goals of access, liquidity, stability, and sustainability. They represent some of the best thinking of policy researchers and economic experts to the challenges that lie ahead for the rebuilding of this key sector of our nation’s economy.

Housing finance reformers have not been short of options. In the wake of the Great Recession, proposals have arisen across the political spectrum, spanning the range from immediate privatization to complete government takeover. The chapters in this book center around four points of consensus that have formed among the major stakeholders.

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