Housing and Mortgage Markets

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Lawrence WhiteProfessor Lawrence White Testifies before U.S. House of Representatives on Fannie Mae & Freddie MacMarch 06, 2013.

Lawrence White, Robert Kavesh Professor in Economics and Deputy Chair of the Economics Department, testified on March 6, 2013 before the Subcommittee on Capital Markets and Government Sponsored Enterprises at their hearing on “Fannie Mae and Freddie Mac: How Government Housing Policy Failed Homeowners and Taxpayers and Led to the Financial Crisis.”

Professor White traced the history of Fannie Mae and Freddie Mac, and discussed the role the two government sponsored enterprises (GSE) played in the housing bubble that stretched from the late 1990s to the mid-2000s and the subsequent housing collapse and financial crisis.

“There are at least two major policy lessons to be learned from the GSE experience,” Professor White asserted. “First, there are rarely (if ever) ‘free lunches’ to be found in economic policy. The lower mortgage costs that the GSEs provided – ¼ of a percentage point on conforming mortgages – appeared to be a free lunch, since there were no budgetary implications at the time in connection with the GSEs’ special status and the ‘implicit guarantee.’ However, the ‘lunch’ has become costly indeed...Read More

In the Media

“How to Put An End To Fannie And Freddie,” by Professors Viral Acharya, Stijn Van Nieuwerburgh, Matthew Richardson, Lawrence White, Forbes.com, January 10, 2012.

“Reforming the US Housing Finance System: A Proposal,” by Professors Viral Acharya, Stijn van Nieuwerburgh, Matthew Richardson, Lawrence White, in The Financial Development Report, World Economic Forum, 2011.

"What to Do About U.S. Mortgage Finance,” Viral Acharya, Matthew Richardson, Stijn Van Nieuwerburgh, Lawrence White, Reuters, September 9, 2011.

“White Picket Fence? Not so Fast,” by Professors Viral Acharya, Stijn van Nieuwerburgh, Matthew Richardson, Lawrence White, New York Times, August 16, 2011.

“How to reinvigorate the US mortgage market,” by Professor Viral Acharya, GFS News, March 28, 2011.

“Fannie & Freddie: The Biggest Bailout,” Matthew Richardson, NY Post, March 29, 2010.

Public Appearances

Testimony before U.S. House of Representatives on Fannie Mae & Freddie Mac, by Professor Lawrence White, March 06, 2013 (Testimony).


“The Way Forward: U.S. Residential Mortgage Finance in a Post-GSE World,” Lawrence White, in House of Cards: Reforming America's Housing Finance System, Mercatus, Working Paper, (March 2011).

ABSTRACT (Click Here for Paper)
The “government-sponsored enterprise” (GSE) system of residential mortgage finance is clearly broken. But what will replace it remains an unanswered question. This paper lays out a vision for how private markets would if given the opportunity replace the GSEs and provide a fully functioning secondary market for residential mortgages. In the event that the private sector is deemed inadequate for the task, this paper also proposes a “side-by-side” private/government form of mortgage guarantee that would be superior to the “tail risk” or “catastrophe” government insurance proposals that have circulated as alternatives to the GSEs.

“The Federal Home Loan Bank System: Current Issues in Perspective,” Lawrence White, in Reforming Rules and Regulations, 2010.

ABSTRACT (Click Here for Paper)
The Federal Home Loan Bank (FHLB) System is a very large, but relatively unknown, cooperatively owned government sponsored enterprise (GSE) that is charged with assisting its owner/members to finance housing and some community lending. After an introductory overview of the FHLB System, this chapter summarizes the 77-year history of the System, including the evolution of this institution's structure, public mission, and activities. Building on this background, we then conduct an evaluation of the public policy question of the expansion of the FHLBs' authorization to issue standby letters of credit. We further examine the role, actions, and stresses of the FHLB System in the context of the current financial crisis, as well as outlining some possibilities for the System in the post-crisis U.S. financial structure.

“Bursting the Bubble: Fixing What Ails Housing,” Lawrence White, Milken Institute Review, (Fourth Quarter 2010).

ABSTRACT (Click Here for Paper)
The financial crisis of 2007-09 was, of course, triggered by the puncture of a great housing bubble that had been inflated by mortgage lenders and their agents. And while the full story of this debacle (like every story involving trillions of dollars in capital) is complicated, its outline is pretty straightforward. When home prices began to slip after peaking in mid-2006, a trickle and then a flood of borrowers defaulted on their mortgage payments. This generated losses for lenders and, in turn, the owners of securities that had been backed by those mortgages. A few very large investment banks and commercial banks figured prominently among the ranks of those owners. And their thin capital proved inadequate to absorb the losses, bringing the global financial system to the brink of a true collapse that was prevented only by massive government intervention.

“A Flawed Regulatory Concept: The Community Reinvestment Act,” Mercatus on Policy, (July 2009).

ABSTRACT (Click Here for Paper)
The 2007-2008 financial debacle has raised many questions as to whether the Community Reinvestment Act (CRA) played a facilitating role. Congress enacted the CRA in 1977 in response to the belief that low and moderate income (LMI) communities needed expanded access to credit. This legislation is a regulatory effort to “lean on” banks and savings institutions in vague and subjective ways to make loans and investments that (CRA proponents believe) those depository institutions would otherwise not make. Although the goals for promulgating the CRA were well intended and the CRA was not instrumental in the current subprime mortgage driven debacle, the CRA is not good public policy.

“The Community Reinvestment Act: Good Goals, Flawed Concept,” Lawrence White, in Revisiting the CRA: Perspectives on the Future of the Community Reinvestment Act, Federal Reserve Banks of Boston and San Francisco, (February 2009).

ABSTRACT (Click Here for Paper)
Views about the CRA surely differ from those of many of the other individuals who will contribute to this colloquium. I believe that, despite the good intentions and worthwhile goals of the CRA's advocates, the CRA is an inappropriate instrument for achieving those goals. Fundamentally, the CRA is a regulatory effort to "lean on" banks and savings institutions, in vague and subjective ways, to make loans and investments that (the CRA's proponents believe) those depository institutions would otherwise not make. It is a continued effort to preserve old structures in the face of a modernizing financial economy. At base, the CRA is an anachronistic and protectionist effort to force artificially a local focus for finance in an increasingly competitive, increasingly electronic, and ever-widening realm of financial services.

“From an Approach to a Plan: The Key is Fairness,” Stephen Figlewski, NYU Working Paper, (November 14, 2008).

ABSTRACT (Click Here for Paper)
The plan I have just sketched out would calm the mortgage market which has been the main driver in destabilizing the financial system. It would also turn the toxic securities that are causing large actual losses and much larger uncertainty among financial institutions, and which are paralyzing the credit markets, into benign government backed securities. It would treat homeowners and mortgage lenders fairly. And the drain on the US budget would be relatively limited. It could even end up being nearly costless if the housing market settles down within a few years. The plan would also have important benefits for the housing market. First, it would eliminate the severe human cost of evicting families from their homes. Second, it would eliminate the pressure on the real estate market from foreclosed homes being liquidated at fire sale prices because that is the only way for the lenders to recover any value from the defaulted mortgages. This process has very pernicious effects on home values, both for the lenders who want to recover as much of their investments as possible and also for any homeowner who simply needs to sell a house. Third, it would eliminate the collateral damage on neighborhoods and communities where a significant number of properties stand empty after a foreclosure.