The Devil's in the Tail: Residential Mortgage Finance and the U.S. Treasury

This paper seeks to contribute to the U.S. housing finance reform conversation by providing a critical assessment of the various types of policy proposals that have been offered. There appears to be a broad consensus to maintain explicit government guarantees for certain narrowly defined borrower populations, such as FHA insurance guarantees for low- and moderate-income and first-time homebuyers. However, the expected role of the federal government in the broader housing finance system is in dispute: ranging from no role; to insuring against only extreme or tail events; to insuring against all losses. However, most proposals agree that any public insurance be priced and available only for loans meeting pre-specified criteria in an effort to limit taxpayer exposure