YG, I think you hit the nail on the head, this lack of explicit government guarantee is THE REASON the GSES' have survived for almost 50 years despite the inevitable US Housing price crashes within that time period!
The implicit versus explicit guarantee accomplishes at least 2 important goals:
(1) It keeps $6 Trillion OFF THE BALANCE SHEET OF THE FEDERAL GOVERNMENT.
(2) It provides Americans, including low to moderate income Americans with access to low cost funding for housing, and if you look at the 2/3 of Americans that "own" their own home, it is typically their largest asset on their family balance sheet.
Historically, according to TH and FDIC backed data, the average losses incurred by banks on home mortgages is approximately 15bps.
THEIR IS a delicate balance BETWEEN having the GSES' hold too much capital and too little.
The WH/UST September 2019 Housing Plan has one major flaw, and that is its goal of handing out government guaranteed MBS charters to financial intermediaries.
The free market advocates, typically Republicans and Libertarians are convinced that the market knows best and works best with more competitors and less regulation, and I agree with that EXCEPT in some situations like the Secondary Mortgage Market.
While the MBA, NAR, and other housing finance interests seem to prefer the free market approach, it is flawed, and I don't see Congress granting these new charters because of the impact on the Federal Government Balance Sheet and after the 08/09 PLS disaster.
The dilemma with the Capital Rules over capitalization and MC's flawed vision is that it WILL result in higher housing costs for both renters and owners.
If you haven't read any of Georgetown Professor Adam J. Levitins work just Google this:
Written Testimony of
Adam J. Levitin
Professor of Law
Georgetown University Law Center
Before the United States Senate
Committee on Banking, Housing, and Urban Affairs
“Chairman’s Housing Reform Outline: Part 1”
March 26, 2019
10:00 am
