Housing Finance

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To meet HUD quotas for mortgages to borrowers at or below the median income where they lived, Fannie and Freddie bought riskier mortgages, even if these mortgages were cash-out refinances.

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Federal policy often tilts the playing field, picks winners and losers, and rewards well-connected insiders, contributing to the public perception that the ‘game’ is rigged and harming economic growth. AEI scholars have identified a few policy changes that lawmakers can pursue if they want to combat cronyism and corporate welfare.

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In reality, the government spends a lot of its time trying to hide the real costs of what it is doing from the people who will ultimately pay them. This is particularly true in housing policy.

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What do the election results portend for the reform of Fannie and Freddie? Experts will discuss what could and should happen with housing finance reform in the new Congress.

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The fact that the government is once more trying to reduce underwriting standards, in order to sell more homes, shows clearly that the lessons of the financial crisis are again being ignored. Taxpayers should ask themselves why they just stand by and let this happen.

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Seven years after the housing bubble burst, federal regulators backed away this month from the tougher mortgage-underwriting standards that the Dodd-Frank Act of 2010 had directed them to develop. New standards were supposed to raise the quality of the “prime” mortgages that get packaged and sold to investors; instead, they will have the opposite effect.

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Housing policy needs to be refocused on strengthening household balance sheets, especially by making borrowers more resilient to home price declines. The new Wealth Building Home Loan developed at the American Enterprise Institute does exactly that.

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The release of data on mortgage originations collected under the Home Mortgage Disclosure Act has given rise to a number of articles that cite “racial disparities” in loan denial and approval rates. But do these numbers represent differences arising from the application of consistent credit standards to various groups, or are they disparities that arise from inconsistent credit standards? From the data as required by and reported under the HMDA, you cannot know the answer.

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In the first three years of a Wealth Building Home Loan, 77% of monthly mortgage payments pay off principal while in a 30-year loan only 32% goes toward principal. After 15 years the home is owned free and clear, and starting in year 16 the family has cash flow available for life-cycle needs such as their children’s education.

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These three studies are: 1. Sizing Total Exposure to Subprime and Alt-A Loans in the U.S. First Mortgage Market as of 6.30.2008, 2. Sizing Total Federal Government and Federal Agency Contributions to Subprime and Alt-A Loans in the U.S. First Mortgage Market as of 6.30.2008, and 3. High LTV, Subprime and Alt-A Originations Over the Period 1992–2007 and Fannie, Freddie, FHA, and VA‘s Role.

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