Housing Finance System Fails

The U.S. has $9 trillion in outstanding home mortgages, not including $1 trillion in seconds and home equity loans. In response to the financial crisis, the Fed began quantitative easing (QE) to stimulate the economy, including purchases of mortgage-backed securities (MBS) issued by Fannie Mae and Freddie Mac. One of the most significant effects was a decline in mortgage rates to generational lows, which supported the housing market and the economy during one of its most vulnerable periods. The financial crisis highlighted the importance of the secondary mortgage market and the vulnerability of financing for homebuyers in times of crisis. Should lenders decide to move away from mortgage lending because of onerous regulations or increased risks in the secondary market, home buyers’ ability to access affordable mortgage financing would be severely limited.

When and to what extent Fannie Mae and Freddie Mac are revamped or replaced remains unknown. A secondary market that is not available in all economic climates and that does not preserve access to affordable mortgage financing for qualified home buyers would place agents and the entire industry in jeopardy.