922 transition the gses should get out of the

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strengthening of the recourse feature for mortgage lenders in the United States. 9.2.2 Transition The GSEs should get out of the business of promoting home ownership for low-income households and underserved regions. As we mentioned earlier, Freddie and Fannie have mission quotas for lending in underserved areas and to households with incomes below the local median income. We strongly recommend abolishing these quotas because they have contributed to the increasing riskiness of the GSE portfolios. Because they constrained the GSEs in terms of the portion of the company’s mortgage purchases that went to a specific set of borrowers, they mechanically forced the GSEs to take on a large fraction of risky loans as the economic situation of these households deteriorated. Furthermore, the consensus among academics is that the affordable housing goals have not substantially increased homeownership among low-income families. 76 We believe that whatever decision is made about the future of the GSEs, the current joint mandate of making secondary mortgage markets liquid and well-functioning and of promoting access to mortgage credit by underserved groups of regions are mutually incompatible. As described above, the current approach of government intervention through the GSEs -- to keep mortgage interest rates artificially low for all households -- is both too expensive and ineffective.
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133 Instead, the policy objective of promoting and subsidizing low-income home ownership should be the exclusive domain of the Federal Housing Administration and its securitizer Ginnie Mae. These institutions have the expertise with low-income mortgage insurance and securitization and are much better suited to perform the targeted role of helping the underserved income groups or regions. Ginnie Mae, for example, runs an efficient securitization business, with no retained portfolio, little risk , and a small staff. Such a focused approach would not only be more effective, but also much more transparent, with its costs and benefits in plain sight and part of the government budget. Having lost market share to subprime lenders and to the GSEs during the boom, the FHA has filled the void after the collapse of private sector lending and the GSEs. Rather than continuing to expand the market share of FHA, now is the time to delineate which households deserve mortgage support through the FHA. As a general principal, mortgage assistance programs should be more targeted toward low-income households. Whenever possible, homeownership policy should aim at helping potential homeowners without promoting excessive leverage. Rental subsidies, such as the HUD rental voucher program, may be a more cost effective way to help low-income households than are poorly conceived ownership stimulus or mortgage guarantees. Finally, federal housing policy would benefit from streamlining and consolidating the myriad programs that support low-income housing and benefit from modernization so as to execute its mission effectively.
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