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Home Publications Reports Bringing Back Subprime? The Hazards of Restructuring the GSEs

Bringing Back Subprime? The Hazards of Restructuring the GSEs

October 2013, Dean Baker and Nicole Woo

There have been a number of proposals for replacing the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, with a system under which private financial institutions would issue mortgage-backed securities (MBS) that carry a government guarantee. This paper raises a number of questions about the merits of such a system. It points out that both the gains to low-income families seeking to become homeowners from such a system and interest rate savings are likely to be relatively modest, and that there are few obvious safeguards that would make this new system sounder than the system of privately-issued mortgage-backed securities in the bubble years.

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