Coalescence in the Housing Finance Reform Debate?

Abstract

In the wake of the stalled Johnson-Crapo bill, the overarching goal of housing finance reform continues to be the efficient provision of long-term fixed-rate mortgages to credit-worthy borrowers in all markets throughout the business cycle. This Issue Brief analyzes three newly-proposed plans for reforming the U.S. housing finance system: (1) a proposal from Jim Parrott et al. to merge Fannie Mae and Freddie Mac into a new government corporation; (2) Andrew Davidson’s proposal for mutual ownership of the GSEs by mortgage originators; and (3) an opposing plan from Mark Calabria, arguing against securitization altogether and for a return to the regime of originate-and-hold.

Despite differences regarding implementation and governance philosophy, a new consensus may be emerging for reform, demonstrated most clearly in the first two proposals, which recognize the efficiency of centralizing and concentrating control of the housing finance system’s infrastructure and credit risk. Notwithstanding the important points of consensus, the new proposals still leave certain issues unresolved, including the potential for cyclicality. Still, broad support for centralized functions (i.e., promoting standardization, liquidity, consumer protection, and access to credit), as well as the organic growth of credit risk transfer transactions in recent years, may be important to reigniting the push for resolution of GSE conservatorship.

Keywords: Housing finance reform, Government Sponsored Entities

JEL Classification: G18, G21, G28, R38, R39