How would you reform the GSEs?
We need to work toward a system where government subsidies don’t set the terms for the market. We have to dramatically rein in the missions of the GSEs by not only eliminating their ability to hold mortgages, but limiting the mortgages they can ensure. You can do that by limiting the mission to first time homebuyers, by the size of the mortgage Fannie and Freddie can back, borrower income, or all of the above.
Importantly, we need to make sure there is no implied government backed guarantee on Fannie and Freddie corporate debt.
What happens if nothing changes at Fannie and Freddie?
Without the discipline of a private market, we are in danger of creating another speculative housing bubble, which would again result in massive losses and economic hardship when it bursts.
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