A GSE Reform debate from the Urban Institute illustrates that collateral composition, house price experience, and diversification significantly affect credit risk, and thus the capital requirement.
Policymakers are still focusing on what comes next. All proposals appeal for private capital to take more credit risk in the market for mortgage-backed securities. So, how much private capital is enough? If capital requirements are too low, the government guarantee will be invoked too often; if they are too high, banks will shift the ultimate risk of their lower-quality loans to the government.
Read the Entire Article