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How We Can Replace Fannie Mae and Freddie Mac

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OUR FORECLOSED WORLD
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In this paper, the New York Federal Reserve looks at the pros and cons of the so-called lender cooperative utility, which could ultimately replace Fannie Mae and Freddie Mac.

Ok, so what is this so-called lender cooperative utility? Essentially, it would focus on the "core" of the housing market, allowing the Federal Housing Authority to take the lead on programs for first-time homebuyers as well as for low-income households. This is how the structure looks, according to the Fed paper:



The paper claims the following are advantages of the coop model:
  • Low costs, narrow mission.
  • May help limit monopoly power.
  • Low risk-taking.
  • Inside monitors.
  • Maintains standardization benefits.
  • Minimize government involvement.
  • Simplifies pricing.
And then the disadvantages:
  • Governance may be weaker.
Hahaha!
  • Limited access to capital markets.
  • Broad participation may be difficult.
  • Investment and innovation would be more limited.
The last thing we need is more "innovation" in the residential real estate market.

The bottom line, as you have probably already gathered given the weight of what the Fed paper cites as advantages over disadvantages, is the Fed likes this model and will likely be among those pushing for it when the Treasury opens up the issue for a larger discussion later this year.
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