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U.S. Mortgage Market Reform: Corker–Warner Bill Misguided
Posted By John Ligon On June 22, 2013 @ 12:01 pm In Economics | Comments Disabled
Draft legislation by Senators Bob Corker (R–TN) and Mark Warner (D–VA) would wind down federally sponsored housing finance giants Fannie Mae and Freddie Mac, but it suffers from many of the same problems the system faced over the past two decades.
The bill would replace the Federal Housing Finance Agency, the current conservator of Fannie Mae and Freddie Mac, with a new government agency, the Federal Mortgage Insurance Corporation (FMIC).
The new FMIC, structured as an independent agency similar to the Federal Deposit Insurance Corporation, would serve as a regulator and guarantor of the secondary mortgage market. Specifically, it would:
These are the same kinds of policies  that undermined the U.S. housing finance system and stable homeownership over the past two decades.
In the years before the 2008 housing crisis, there was little concern among private investors about the underlying strength of the mortgages that backed MBSs, because Fannie and Freddie assumed these risks with the implicit guarantee  of the federal government. Corker–Warner would simply replace the names of the entities with the full faith and credit of the U.S. government.
These guarantees are not needed. The federal government already plays the role of underwriter and guarantor  through the Government National Mortgage Association (Ginnie Mae), which serves targeted groups of potential homeowners (mostly low-income, military, and eligible first-time homebuyers) who would not likely be served by the conventional mortgage market.
The Corker–Warner bill would effectively place the remainder of the U.S. secondary mortgage markets under the FMIC—as the underwriter, regulator of mortgage-backed security issuers, and backstop to the entire system for all losses not absorbed by private capital.
This effort is not surprising, given the myriad interest groups with huge stakes in the continued expansion of mortgage credit and the political incentives to provide handouts through loose mortgage credit. This system would only continue undermining responsible, stable homeownership and do little to avoid the many policy mistakes of recent years.
Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org
URL to article: http://blog.heritage.org/2013/06/22/u-s-mortgage-market-reform-corker-warner-misguided/
URLs in this post:
 same kinds of policies: http://www.heritage.org/research/testimony/2013/how-government-housing-policy-failed-homeowners-and-taxpayers-and-led-to-the-financial-crisis
 already plays the role of underwriter and guarantor: http://www.heritage.org/research/reports/2013/06/will-fha-require-the-next-round-of-housing-bailouts-from-the-taxpayer
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