We’re blogging live from today’s Dodd-Frank Symposium!
Dwight Jaffee from the Haas School of Business kicked off the first set of Securitization and Governance panel presentations with a talk on Bank Regulation and Mortgage Market Reform.Key Highlights from the presentation:
- Moral Hazard in Securitization is wrong: Jaffee says that the hoopla over securitization causing the mortgage bubble and financial crisis is misplaced and the 5% risk-retention requirement will do nothing but restrict fundamental value of securitization, which is to spread out and segment risks.
- The private market can fully replace the GSEs: Jaffee thinks the proposals to wind down the GSE are generally a good thing and believes that the private market is more than capable of meeting the credit demand the GSEs currently now provide. Citing Europe, which Jaffee says has similar rates of homeownership as the U.S., Jaffee says that the GSEs have had minimal if any impact on spurring additional homeownership.
- Mortgage Contracts will Default to Safe, Low Risk Terms: Jaffee argues that in the absence of GSEs in housing market, the lack of conforming loan standards would nonetheless push borrowers toward the safest, least risky loan terms (i.e., the market would correct itself and move away from costly terms like prepayment penalties.
For a full read of Dwight Jaffee’s ideas, see his working paper on mortgage market reform.