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.

Only by ensuring mortgage quality and fostering the accumulation of adequate capital behind housing risk can a robust housing investment market be created without government guarantees.

As policymakers continue their efforts to reduce the government’s role in the currently nationalized housing market, the broadly available and deep subsidies provided to the five divisions of the Government Mortgage Complex continue to distort the marketplace and thwart these efforts.

The US housing finance market should function without any direct government financial support. It should also ensure mortgage quality, a stable budget for assistance to low-income families, and eliminate Fannie and Freddie.

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.  

Fannie Mae and Freddie Mac played a dominant and disproportionate role in American housing finance, and in the wake of the bubble, it is clear that this GSE-centric model should not survive.

Comparing the American housing finance system to other countries makes clear that one thing remarkable and indeed unique in the world about American housing finance was the dominant and disproportionate role played by government-sponsored enterprises

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.