Progress on Housing Finance Reform

The imperative of housing finance reform is to devise a new system that protects taxpayers against another costly bailout while ensuring that American families have access to mortgages on reasonable terms. Challenges With Reform A key challenge in moving forward with reform is that bringing in private investors who take losses ahead of taxpayers will translate into higher mortgage interest rates, reflecting the compensation demanded by private investors to take on housing credit risk. Indeed, in the past, proponents of reform were sometimes derided as being anti-housing for supposedly wishing for higher interest rates. The crisis has mostly silenced this criticism, with broad agreement that reform must involve greater private capital to take losses ahead of any potential government backstop. The Corker-Warner proposal requires investors to put at risk funds equal to 10 percent of the value of the mortgages included in mortgage-backed securities to be guaranteed by the government.

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