Twelve years into the 21st century, the dominant financial and economic fact is that we are still living in the wake of athe vast housing and mortgage bubble, which peaked in mid-2006, almost six years ago.  

Treasury Secretary Timothy Geithner has said that the administration wants to bring private capital back to the housing finance market. But without reopening Dodd-Frank and reigning in the Federal Housing Administrations (FHA), winding down government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac will not be enough to allow the private market to return

As the United States approaches the bottom of the housing bust, American Enterprise Institute (AEI) housing expert Alex Pollock explains in a recently published piece that there are seven necessary steps to avoid another housing collapse.

In this paper, I endeavor to show that continuing U.S. government involvement in the housing-finance system will inevitably involve serious losses for taxpayers and that the U.S. housing finance system could function well without GSEs or any other form of government financial support simply by ensuring that only good quality mortgages are allowed to enter the securitization system. 

Few recognize just how troubled this government agency really is. When measured against the accounting system used by private mortgage insurers, the FHA is deeply insolvent, with a capital shortfall of tens of billions of dollars. If it were a private firm, state regulators would immediately shut it down. 

For any housing finance reform plan to be credible, it must do much more than wind down the GSEs. Because of the Dodd-Frank Act a number of formidable legal obstacles now exist that must be cleared away before a private securitization market will come back. If the administration is serious, its plan must address all these issues.

In 2011, the Government Mortgage Complex accounted for 88 percent of all first-mortgage originations in the United States, with the government also controlling an estimated 90 percent of the student loan market. The government’s growing dominance in the home mortgage and student loan categories is cause for concern, posing a threat to private investors, borrowers, and taxpayers.