The housing crisis proved that the secondary mortgage market is broken. The government is still involved in nine out of every 10 transactions.
The government bailout of Fannie Mae and Freddie Mac were intended to be short-term solutions. So, even though housing is one of the sectors leading the economy back, it still lacks sustainability.
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They were designed to give the market some stability while the market rebuilt the housing finance system.
Access to credit is still difficult even for qualified borrowers. It’s essential for the sustainability of the market to create a more secure and competitive marketplace.
This means there needs to be more involvement from the private sector. That’s the only way to rebuild a healthy secondary market.
FHFA recently issued a white paper that outlines two necessary components for a viable secondary market infrastructure. The first is a physical technology platform to drive existing secondary market operations.
The second is a virtual infrastructure consisting of the contractual provisions that govern secondary market transactions.
Current proprietary infrastructures are outmoded
and need to be updated. Traditional government mortgage guarantee programs should be reviewed to determine which borrowers need to have access to government programs.
Then the private market’s ability to intermediate credit for single-family housing should be assessed.
Standards need to be reviewed and specific components that need government oversight should be identified.
These questions provide a place to start. But if the housing market is to do more than lead the economy back, these issues have to be addressed.