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Housing Markets & Conditions

The Role of the Implied Guarantee Subsidy in FHLB Membership: Beautiful Politics but Ugly Policy

Author: Don Layton | July 27, 2020

The Federal Home Loan Bank (FHLB) system consists of eleven regional banks that are cooperatives owned by their members, which their congressional charters currently specify can include commercial banks, thrifts, credit unions, insurance companies and certain other organizations. Because of the government support to their borrowings, the advances are low cost compared to the regular market rate funding available to the member-owners. The original focus of the FHLB system, as implied by its name, was on mortgage lending and mortgage-centric financial institutions that were not eligible to be members of the Federal Reserve system....

Demystifying GSE Credit Risk Transfer: Part III – Special Interests and Politicization

Author: Don Layton | July 06, 2020

This third installment about demystifying single-family mortgage credit risk transfer (CRT) by the government-sponsored enterprises (GSEs) Freddie Mac and Fannie Mae describes a series of attempts to politicize CRT, including an analysis and correction of the many misconceptions integral to those attempts....

America’s Housing Finance System in the Pandemic: The Causes and Policy Implications of Credit Tightening

Author: Don Layton | June 16, 2020

As the economic impact of the pandemic continues, one of the biggest issues to emerge in housing finance is the availability of mortgages. Media reporting and policy discussions often imply that mortgage credit tightening – which has undeniably occurred – is a major problem, maybe even on par with what happened in the financial crisis just over a decade ago. Additionally, especially in the housing finance policy community, the implication seems to be that somehow much or even all of that tightening is illegitimate, a failure of government policy...

Demystifying GSE Credit Risk Transfer: Part II - How, and How Well, Does It Work?

Author: Don Layton | February 03, 2020

Credit risk transfer (CRT) has become, in relatively quick order, a core component of the business model of the two Government-Sponsored Enterprises (GSEs), Freddie Mac and Fannie Mae, and very substantially improves that business model. In this paper, Don Layton explains how CRT works....

Demystifying GSE Credit Risk Transfer: Part I – What Problems Are We Trying to Solve?

Author: Don Layton | January 21, 2020

The credit risk transfer (CRT) was pioneered by Freddie Mac in 2013 as a way of reducing systemic risk, as well as the degree of taxpayer exposure to GSE risk. Though it has played an increasingly important role in both GSEs’ operations, it is still not widely understood. In the first of three papers on this subject, Don Layton explains how CRT works, as well as the benefits it provides. ...

Treasury’s Long GSE Capital To-Do List: Clearing the Decks for Investors

Author: Don Layton | December 19, 2019

As 2019 ends, the two Government-Sponsored Enterprises (GSEs) Freddie Mac and Fannie Mae finally have some momentum in ending their conservatorships, the legal status under which they have operated essentially as wards of the US Government for over eleven years now. For the exit from conservatorship to take place administratively, the big agenda item still to be addressed is capital – in the broadest context, covering a lengthy list of topics....