In the current debate about reform of the housing finance market, proponents of a continuing government role frequently argue that without government backing, the so-called "to be announced" (TBA) market could not exist. But that's simply not true.

The Federal Reserve has recently begun discussing strategies for reducing its approximately $1.2 trillion of Mortgage Backed Securities (MBS) acquired from Freddie Mac, Fannie Mae and Ginnie Mae during the financial crisis.

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. 

Here we go again.  A series of uncoordinated government policies are once more setting up the U.S. banking system for major losses and possibly another financial crisis.  

The accounting problems of Fannie Mae have focused attention on the two ways they make their profits. A substantial part of their earnings comes from buying and holding mortgages and mortgage-backed securities (MBS), but they also earn substantial amounts by charging fees for guaranteeing that investors will receive full payment...

For many in the U.S., the worrisome events occurring in Europe recall the 2008 financial crisis. If Greece or some other country should fail to meet its debt obligations, the result could be much like the 2007 mortgage meltdown in the United States. Why is all this happening again?

When the bubble deflated in 2007, an unprecedented number of weak mortgages went into default - those that were held or guaranteed by Fannie and Freddie, and those that had been securitized by Wall Street. This drove down housing prices and threw Fannie and Freddie into insolvency. 

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