Posted by Jonathan J. Miller -Tuesday, February 8, 2011, 10:47 PM
One of the things that annoys me about talking heads (self-included on occasion) is there is a lot of kvetching provided but not many solutions offered. Mark Zandi, the noted economist and recent guest on my podcast has come up with a possible solution for the glimmer twins Fannie/Freddie (the former GSEs):
Mortgage rates could be one percentage point higher and house prices 10% lower if the U.S. mortgage market were fully privatized, according to a paper to be released Tuesday by Mark Zandi, chief economist at Moody’s Analytics.
The calculations help build Mr. Zandi’s case for replacing Fannie Mae and Freddie Mac with new entities constituting a public-private hybrid system for financing home loans.
Wait, isn’t this a repeat of the past?
The problem before was that the GSEs served two masters: Taxpayer AND Shareholder. The shareholder enjoyed an unfair advantage since the taxpayer was the backstop that allowed higher risk taking that ultimately brought the GSEs down.
But Zandi contends that a completely private entity will not work because investors will assume that the government would step in if there was a problem. I agree with him. A purely private solution ignores this reality.
MBICs (mortgage bond insurance companies) who would securitize packages of bank loans and sell them.