Reforming America’s Housing Finance Market: A Report to Congress

Date Published 2/14/2011
Author Marja Hoek-Smit
Country United States

Department of the Treasury and Department of Housing and Urban Development, United States Government

The long awaited plan Reforming America’s Housing Finance Market: A Report to Congress was issued February 11, 2011 and sent to Congress. Rather than a specific plan, the administration sets out broad principles for reform and options for targeted government support for affordable housing, while leaving details to be decided by Congress.  The outline for reform focuses on three areas:  i) Winding down Fannie Mae and Freddie Mac over a maximum period of ten years, while making room for the private market to return to the sector and level the playing field between the agencies and private players. Policies will target FHA’s activities --reducing its guarantees to no more than 10% of the market, down from the current  30%--   in order to prevent it from filling the void left by the GSEs. In addition it calls for reform and stricter oversight of the Federal Home Loan Bank system; ii) Fixing flaws in the mortgage market, building on the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in July 2010 and proposing near term reforms in servicing and foreclosure processes; iii) Improving the government’s support for affordable housing, both rental and homeownership, and reforming and strengthening FHA’s programs for affordable mortgage lending – The plan sets out three options for the long-term structure of housing finance and to shrink the role of government in guaranteeing or holding mortgages (currently > 90percent of market share): i) A mostly privatized system of housing finance with a limited and narrowly targeted role for government insurance linked to FHA and other federal programs; ii) Same as first option but with the potential to scale up a guarantee system during times of crisis; iii) A mostly private mortgage market outside FHA and other federal agency guarantee programs, but with catastrophic reinsurance by government of private securities of a targeted range of mortgages. 

Download "Reforming America’s Housing Finance Market: A Report to Congress" here.

On February 11, the Initiative on Business and Public Policy at Brookings hosted a day-long forum to discuss the issues and the options ahead as policymakers discuss the government's role in the U.S. residential mortgage market. Papers and discussants' slides, as well as the Geitner and Greenspan presentations, are now posted on the Brookings website.

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