Reforming the Residential Mortgage-Backed Securities Market
Forthcoming, Hamline Law Review, 2012
15 Pages Posted: 5 Apr 2012 Last revised: 15 May 2012
Date Written: April 5, 2012
This essay is a lightly-edited version of a talk given at the “Federal Housing Finance Policy, Secondary Mortgage Market Issues: Causes and Cures, Secondary Mortgage Market Reform” symposium at Hamline University School of Law. The issues that we are struggling with now are, in many ways, the equivalent of the issues that we struggled with during the Great Depression: what should housing policy look like and what decisions should be made in the next five years or so to bring us from crisis to stability? In all likelihood our answer to this question will define the housing market for generations. To help answer the question, this essay will proceed as follows. First, it will provide some context for American housing policy discussions. It will then outline three ethics that inform housing policy. The essay will then focus on one of the key issues that we face — what should happen with Fannie and Freddie as they exit conservatorship? It concludes by highlighting some of the other housing finance issues that must be addressed before we can move forward with a coherent plan of reform. These additional issues include, first, what is the future of the 30-year mortgage? Second, what is the fate of the lock-in, whereby a person could get a guaranteed interest rate prior to closing the loan? Third, what is the fate of the low-down-payment mortgage? Fourth, what is the appropriate role of the FHA in the context of the entire housing finance infrastructure, and in relationship to Fannie and Freddie in particular? And finally, how much will we allow the goal of increasing homeownership to impact the design of our housing finance system?
Keywords: Fannie, Freddie, Federal Housing Administration, FHA mortgage, lock-in, TBA, 30 year, homeownership, financial regulation, financial crisis, ARMs, adjustable rate mortgage, fixed rate mortgage, low down payment
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