WSJ headlines and questions for February 21 2011

WSJ headlines and - The third option would be to have private firms buy mortgages and securitize them and have the government guarantee the

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WSJ headlines and questions February 21, 2011. WSJ Headline February 12-13. Views of Life After Fannie, Freddie. White House Sees Three Ways to Shrink or Eliminate U.S. Backstop for Housing The White House issued some short-term (5-7 years) plans for Fannie Mae and Freddie Mac and three options for the long run. In the short run, the roles of Fannie and Freddie would be reduced, with a reduction in the maximum size of loans financed, an increase in the fees that the mortgage giants charge lenders, and an increase in the down payment to a minimum of 10%. The first option for the long run is to just eliminate Fannie and Freddie, letting the private sector handle securitization with no government backing. The second option would be to have no government backing except during financial shocks, in which case the government would step in and guarantee or buy MBS.
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Unformatted text preview: The third option would be to have private firms buy mortgages and securitize them and have the government guarantee the securities in return for an explicit fee, provided that the securities met certain criteria, similar to deposit insurance. Questions: 1. Would the short run solution result in higher mortgage rates and fewer home purchases? If so, is this a good thing or a bad thing? 2. Which long term option do you favor and why? 3. Under the first option, wouldn’t mortgages be treated by the government like any other loan (subsidized by the negative net regulatory burden, especially deposit insurance)? 4. Isn’t the second option pretty much like the old system where Fannie and Freddie were private entities except during a financial shock in which case they got bailed out?...
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This note was uploaded on 07/02/2011 for the course FINA 465 taught by Professor Berger during the Spring '11 term at South Carolina.

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