A proven way the fresh new Congress you certainly will constrain how big is these balance sheet sets would be to alter the constitution from Fannie’s and you may Freddie’s mortgage financing by restricting the fresh new dollars amount of the obligations prior to the fresh new dollars quantity of mortgages securitized and you will kept from the most other dealers. Though it is difficult understand the best way setting such as for example a guideline, this method perform still develop the new breadth and you will liquidity out of mortgage segments due to home loan securitization however, manage get rid of all of the potential systemic dangers in the such GSEs. If at all possible such as a proportion create focus the company operations off Fannie and you may Freddie to the improvement out-of secondary avenues and never to your the newest bring of the implicit subsidy. step three
With the first strategy, Fannie and you will Freddie are alleviated of great interest-rates chance but are however exposed to credit chance while they be sure MBS dealers contrary to the exposure you to certain people have a tendency to default towards the root mortgages
Restricting your debt out-of Fannie and Freddie and increasing their part for the home loan securitization might possibly be similar to the original congressional purpose why these institutions offer stability in the market for home-based mortgage loans and offer liquidity to possess home loan buyers. Read more