Government sponsored enterprises need to be retooled in order to create a robust home-lending market that would work even during a credit crunch, Federal Reserve Chairman Ben Bernanke emphasized in a speech today at the University of California, Berkeley.
Some potential options that he outlined to reform GSEs such as Washington-based Fannie Mae and McLean, Va.-based Freddie Mac include privatization, a model that would support the mortgage firms through covered bonds, or a public utility regulation model that would establish pricing and other rules with a promised rate of return for shareholders.
“Regardless of the organizational form, we must strive to design a housing-financing system that ensures the successful funding and securitization of mortgages during times of financial stress but that does not create institutions that pose systemic risks to our financial markets and the economy,” Mr. Bernanke said.
“Achieving the appropriate balance among these design challenges will be difficult, but it nevertheless must be high on the policy agenda for financial reform.”
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