Richard Cooperstein's opinion article, "Opinion: How GSE reform could create a healthier housing market" was featured in HousingWire

In the first article of this series, I discussed the argument for turning Fannie Mae and Freddie Mac into public utilities, which would result in more Americans having fair access to mortgage services. However, regulating government-sponsored enterprises (GSEs) as public utilities is not without its detractors.

Privatization is often presented as an alternative option, but as I mentioned in the previous article, it’s not always the ideal approach. Strictly speaking, privatizing means zero federal connection and no limit on the number of GSEs. Without a national market, local supply and demand for mortgages could become unbalanced.

The mortgage markets of 2007 and 2020 remind us that there is no durable mortgage market without federal backing (including the banking system). Nongovernment-backed lending disappeared in both cases virtually overnight.

The subprime mortgage crisis offers a great example of why national guarantor standards are critical. In 2006, nonagency securitizations — which were more likely to involve teaser-rate mortgages and high-risk borrowers without even measuring whether they could afford the mortgages they were getting — made up almost 40% of new originations. Two years later, mortgage lenders issued more than 3.1 million foreclosure filings.