Diversified Mortgage Guarantee Model: Securitizationthrough TBA

Abstract

s the debate continues around the future of housing finance in general and the role of the government-sponsored enterprises (GSEs) in particular, we have seen a proliferation of thought on how to modify the financing framework to attract private capital and reduce the burden of the risk currently being borne by the GSEs and the Federal Housing Administration (FHA). The broad outlines of change have been addressed by the Treasury white paper, while various industry groups such as the Mortgage Bankers Association (MBA) and the Center for American Progress (CAP) among others, have expressed more specific ideas to replace the GSEs. (Proposals from the MBA, CAP, and others are summarized in Brinkmann et al. [2011]). In this article we step back and start by first identifying the principals and the intermediaries or facilitators among the various participants in the entire spectrum of housing finance, recognizing their interests and then making an attempt to optimize their collective goals. The borrowers, the investors who provide the funding, and the taxpayer or the government that always bears the catastrophic risk, under any system, are considered the principals. The intermediaries are the originators, seller/servicers, guarantors, and regulators. The interests of the principals need to be optimized by designing the most efficient framework for the intermediaries.