All of the concerns of endemic risks flow from this new measurements of the balance sheets why these GSEs care for
A good way new Congress you will definitely constrain how big these types of equilibrium sheet sets would be to alter the constitution out-of Fannie’s and Freddie’s mortgage financing by limiting the new money amount of their obligations prior to the new dollar amount of mortgages securitized and you may kept of the most other investors. Although it is hard knowing the best way to set like a tip, this process perform continue to grow the latest depth and you may liquidity regarding home loan segments using financial securitization however, carry out remove most of the potential endemic dangers of this these types of GSEs. Ideally such as a ratio perform attention the company procedures away from Fannie and cash advance Colorado Montezuma you may Freddie towards enhancement out of supplementary avenues and never on new bring of the implicit subsidy. step three
By using the first method, Fannie and you can Freddie is actually treated of interest-rate risk but are however met with borrowing from the bank risk as they make sure MBS dealers from the chance one to specific people commonly default to the root mortgage loans
Restricting your debt regarding Fannie and you may Freddie and you may increasing the role when you look at the financial securitization would be consistent with the unique congressional intent why these institutions render balance searching for home-based mortgages and supply liquidity to have home loan buyers.