With the federal government backing nearly every home loan made in the country today, almost everyone agrees that the current level of support is unsustainable in the long run, and private capital will eventually have to assume more risk in the mortgage market. That leaves two critical questions before policymakers today: What sort of presence should the federal government have in the future housing market, and how do we transition responsibly to this new system of housing finance?
Since the conservatorship of Fannie and Freddie began, dozens of advocacy groups, academics, and industry stakeholders have offered possible answers to these questions. The overwhelming majority of these suggested plans agree that some form of government support is necessary to ensure a stable housing market and to maintain the 30-year fixed-rate mortgage.
In January 2011 the Mortgage Finance Working Group—a progressive group of housing finance experts, affordable housing advocates, and leading academics sponsored by the Center for American Progress—released its plan for responsibly winding down Fannie Mae and Freddie Mac and bringing private capital back into the U.S. mortgage market. Our proposal includes an explicit government backstop on certain mortgage products, requirements that private firms serve the whole market, and an empowered regulator to ensure the sustainability and affordability of mortgage products. The plan also lays out five guiding principles for any reform effort:
- Broad and consistent access to mortgage credit across all communities
- Stability in mortgage finance during all kinds of economic conditions
- Transparency and standardization of products that can be understood
- Access to affordable mortgage finance for both homeownership and rental housing
- Consumer protections to ensure that mortgage products and practices operate in the long-term best interests of borrowers
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