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Spahr and Sunderman Published in Premier Journal

For release:  April 15, 2014

Drs. Ronald W. Spahr, professor in the Department of Finance, and Mark A. Sunderman, professor in the Department of Finance and Morris Fogelman Chair of Excellence in Real Estate, recently published a paper, “The U.S. Housing Finance Debacle, Measures to Assure its Non-Recurrence and Reform of the Housing GSEs,” published in the Journal of Real Estate Research, one of the two A+ journals in the real estate field.

Their study provides another perspective regarding Fannie Mae’s and Freddie Mac’s impact on the recent financial crisis and concludes that the crisis and the GSEs being placed into conservancy was primarily caused by the proliferation of below prime, subprime and Alt A, mortgages, which led to their sustaining significantly higher default losses than anticipated. They posit that the GSEs have unfairly served as scapegoats; whereas, the crisis was largely caused by the proliferation of private label subprime mortgage instruments and by Congress implementing social housing policies thru the GSEs without adequate default risk provisions. They recommend continuation of the housing GSEs because of the benefits they provide homeowners, but with significant changes in mortgage underwriting standards, to reduce default risk, for purchased mortgages. They also recommend that the GSEs use predominately mortgage securitizaton rather than financial intermediation in the future to reduce interest rate risk. Their recommendations provide guidelines for the housing finance industry and Congress that, while maintaining home ownership advantages such as retention of 30-year fixed rate mortgages, will also reduce the likelihood of future similar crises.

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Last Updated: 4/15/14