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Research Summary

  • Securitization

Increasing the Role of Private Capital in the Mortgage Market

Vice President—Fixed Income/Structured Assets
Director—Structured Asset Research and Portfolio Management
December 13, 2011

The US housing market has enjoyed strong government support for decades. Through various tax incentives and the backing of government-sponsored entities (GSEs) such as Fannie Mae and Freddie Mac, the government helped achieve policy goals such as reducing mortgage rates and promoting home ownership. However, in the wake of the recent financial crisis, many of these policies are now being questioned. Following the 2008 crisis, house prices declined nationwide for the first time since the Great Depression, Fannie and Freddie were placed into conservatorship, and the supply of private capital to the housing market dried up, further expanding the government’s footprint in this market.

Today, a consensus is growing that the government’s role in housing finance should be curbed, and that private capital needs to play a greater role. In this paper, we hope to advance the discussion regarding how to attract private capital into the mortgage market, based on our perspective as an investor in mortgage assets.

Share of US Mortgage Debt Outstanding
*Includes mortgage debt issued or guaranteed by GSEs and Federal Housing Administration
As of December 31, 2010
Source: Federal Reserve

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