The Future of US Mortgage Finance
A Public Proposition
Pamela Lee, MUP 2012
The Future of US Mortgage Finance: A Public Proposition
My thesis examines existing federal housing finance policies in the United States, drawing connections between such policies and the core urban planning problems of the twentieth century: wasteful sprawl development, concentration of poverty in decaying urban centers, auto dependency, mismatch between jobs and housing, and negative environmental externalities. Key problems with the existing system of federal housing finance include a lack of affordability and extreme risk to taxpayers and the federal government, as evidenced by the costly aftermath of the 2008 financial crisis. The thesis then explores post-crisis reform proposals, which largely favor a privatization of the housing finance system. These proposals will likely exacerbate existing problems, and will ultimately lead to future economic crises.
I argue that dealing with the fundamental problems requires the creation of a new system of mortgage finance. Taking its cues from alternative reform proposals, which favor a more public system of housing finance, I consider how a publicly financed system of housing finance would work, and propose creating a single-lender model of housing finance. I estimate the impact of the single-lender system on housing affordability, exposure of the federal government to mortgage default risk, and the role of federal, state and local government in housing development. In comparison to reforms adopted in the wake of the recent housing crisis, the single-lender system increases affordability, decreases Treasury risk, and shifts development authority to state and local government.