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. 

In case you missed it: in a recent piece, mortgage finance and housing expert Edward Pinto writes that the 30-years mortgage could well be the cause of a new housing bubble.

The fat years of the housing bubble lasted from 1999 to 2006 - seven years. The bubble was deflating by the beginning of 2007 and collapsed into the panics of 2007-09. Since then we have been struggling in its deflated wake. If we get the Biblical sum of seven lean years, the housing and related debt markets will bottom in 2013 - not a bad forecast. 

In the latest AEI Financial Services Outlook, AEI scholar Peter Wallison, who served as a member of the Financial Crisis Inquiry Commission, explains that we are beginning to see the outlines of the housing finance system envisaged by the new Dodd-Frank Act (DFA).

Secretary Geithner argued that we have forgotten the reasons that the Dodd-Frank Act was necessary, and that's why the act has become so controversial. What the secretary seems to have missed is that we have learned a lot in the intervening years. The administration's rush to judgment on the financial crisis is a case study in why it would have been worthwhile to wait for the facts.

The 30-year fixed-rate mortgage, the most common way U.S. buyers finance a home purchase, isn’t the ideal instrument its supporters claim it to be.

In less than twenty-five years, government “affordable housing” and other housing policies have turned a healthy market into a financial ruin. Until Fannie and Freddie’s market dominance and the government’s role in the housing finance system are substantially reduced or eliminated, the United States will continue to have an inferior and unstable housing market.

Many predict calamity for the housing market without government mortgage guarantees, but Federal Reserve data tell a different story. The data should have a profound effect on the question of whether to replace Fannie and Freddie with another government-backed system.