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52 former federal reserve governor alan greenspan

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52 Former Federal Reserve Governor Alan Greenspan attributes the liquidity of mortgage markets to securitization rather than the extent of GSE portfolio holdings of mortgages. In a speech to the Conference on Housing, Mortgage Finance, and the Macroeconomy, Federal Reserve Bank of Atlanta, Atlanta, Georgia, dedicated to the theme of Government-sponsored enterprises (http://www.federalreserve.gov/boarddocs/speeches/2005/20050519/), he noted: “[S]ince the development of the MBS market, the determinants of interest rates that finance home purchase have exhibited little, if any, response to the size of GSE portfolios.” 53 Edward S. Prescott, 2002. "Can risk-based deposit insurance premiums control moral hazard?" Economic Quarterly, Federal Reserve Bank of Richmond, Spring, pp. 87-100. 54 See Acharya, Viral V., Adler, Barry, Roubini, Nouriel and Matthew Richardson, “Resolution Authority”, Chapter 8 in Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance,
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148 edited by Viral V Acharya, Thomas Cooley, Matthew Richardson and Ingo Walter, eds., John Wiley & Sons, October 2010. 55 Note that this feature closely resembles that of covered bonds, which is one of the more popular mortgage finance instruments that are employed internationally, as is described in Chapter 7. 56 MBA Response to the Administration’s Questions on the Secondary Market and GSEs, June 17, 2010 57 Toni Dechario, Patricia Mosser, Joseph Tracy, James Vickery and Joshua Wright (2010) A Private Lender Cooperative Model for Residential Mortgage Finance,” Federal Reserve Bank of New York, Staff Report no. 466, August 2010. 58 Numbers based on First American Core logic’s report on the number of homeowners who are underwater on their mortgages, and Deutsche Bank’s Securitization Reports on distribution of home equity in housing market. 59 This is not say there would be no government involvement in nonconforming mortgages. Chapter 9 describes the current FHA and VA model for supporting affordable housing, and we would expect that to continue in some form, whether it be homeownership or renting. To prevent a GSE-like entity from emerging, however, the program should be limited in scope, and, to ensure this, should define low mortgage limits and reduce the program to primary homes. 60 Acharya, Viral V., Pedersen, Lasse, Philippon, Thomas and Matthew Richardson, “Taxing Systemic Risk,” chapter 5 in Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance, edited by Viral V Acharya, Thomas Cooley, Matthew Richardson and Ingo Walter, eds., John Wiley & Sons, October 2010 61 The “shadow banking system” describes the parallel method of financing loans that developed wholly outside the traditional depository (banks and thrifts) system during the past few decades, especially for mortgages. The mortgages can be originated by mortgage companies, sold to securities packagers (including investment banks and the GSEs), who then sell the mortgage-backed securities (containing pools of mortgages) to investors
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