Wednesday, February 4, 2015

Have We Learned From Past Mortgage Mistakes or Not?

Edward Pinto believes that the mortgage lending risk is unacceptably high (“Building Toward Another Mortgage Meltdown,” op-ed, Jan. 29). On the contrary, because of the lessons we have learned, and the restrictions imposed by Dodd-Frank-driven regulations enacted since 2008, mortgage credit availability remains tight today, and mortgage credit quality is quite strong.

However, Mr. Pinto does make an important and valid point: Private companies, not taxpayers, should bear the bulk of the credit risk in the housing market. The most effective way to do that would be for government-sponsored enterprises Fannie Mae and Freddie Mac to allow private companies to assume more risk on the front end of the mortgage transaction in exchange for a lowering of the guarantee fees charged to lenders. This solution effectively “de-risks” the mortgages before they ever reach the GSEs and significantly reduces taxpayer exposure. Upfront risk sharing brings more private capital to bear without resorting to stifling increases in guarantee fees and promotes competition among private lenders, credit enhancers and investors, thus driving down costs for borrowers.

The practices and products that caused the mortgage crisis are long gone. Policy makers should focus on policies and reforms that can build sustainable access to credit for qualified borrowers through market competition, while lessening taxpayer risk exposure.

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