healthy. it would be far more disruptive to implement fundamental structural changes during difficult economic times. second, memories of the crisis are fading. if congress does not enact reforms over the next few years, we are at risk of settling for the status quo — a government - dominated mortgage market with insufficient private capital to protect taxpayers, and insufficient competition to drive innovation. there is a serious risk, if not a likelihood, that this state of affairs may persist indefinitely, leaving our housing finance system in a semi - permanent limbo. fortunately, we are blessed with a growing menu of reform options available for public vetting. and there appear to be areas of broad agreement among them. one of those plans, or a combination of different features of various plans, might well suffice to move us to a better system. housing finance reform will protect taxpayers from another bailout, be good for households and the economy, and go some distance toward mitigating the systemic risk that the gses still pose. 1 the views i express here are my own and not necessarily those of the board of governors of the federal reserve system. 2 see, for example, markus k. brunnermeier, “ deciphering the liquidity and credit crunch 2007 – 2008, ” the journal of economic perspectives, vol. 23, no. 1 ( winter 2009 ), pp. 77 – 100 ; major coleman iv, michael lacour - little, and kerry d. vandell, “ subprime lending and the housing bubble : tail wags dog? " journal of housing economics, vol. 17, issue 4 ( december 2008 ) pp. 272 – 290 ; shiller, robert j. ( 2012 ) the subprime solution : how today ’ s global financial crisis happened, and what to do about it, princeton, new jersey : princeton university press ; e. pinto ( 2015 ), “ three studies of subprime and alt - a loans in the u. s. mortgage market, ” american enterprise institute ( january 2015 ), www. aei. org / wp - content / uploads / 2014 / 09 / pintogovernment - housing - policies - in - the - lead - up - to - the - financial - crisis - 3 - studies - 1. 6. 15. pdf. 3 see, for example, alan greenspan, “ government - sponsored enterprises, ” remarks delivered at the conference on housing, mortgage finance, and the macroecono

addition, the creation of a common securitization platform should strengthen the gses ’ securitization infrastructure and facilitate further reforms with an eye toward enhancing competition. new regulations have also been put in place since the crisis with the goal of encouraging sound underwriting of mortgage loans. today, lenders must make a good faith effort to determine that the borrower has the ability to repay the mortgage. moreover, if the lender provides a “ qualified mortgage ” contract to the borrower, then the lender needs to meet certain other 2 / 6 bis central bankers'speeches requirements. 4 for example, some contract features such as an interest - only period or negative amortization, where the loan balance increases even though the borrower is making payments, are taboo. upfront points and fees are limited too. today ’ s challenges these reforms represent movement in the right direction, but leave us well short of where we need to be. despite the gses ’ significant role in this key market, there is no clarity about their future. when they were put into conservatorship, treasury secretary paulson noted that “ policymakers must view this next period as a ‘ time out ’ where we have stabilized the gses while we decide their future role and structure. " 5 almost nine years into this time out, the federal government ’ s domination of the housing sector has grown and is actually greater than it was before the crisis. fannie, freddie, the federal housing administration ( fha ) and u. s. department of veterans affairs have a combined market share of about 80 percent of the purchase mortgage market, with the remaining 20 percent held by private financial institutions. after reaching nearly 30 percent of the market before the crisis, private - label securitization has dwindled to almost nothing today. the two gses remain in government conservatorship, with associated contingent liabilities to us taxpayers. 6 fannie and freddie have remitted just over $ 270 billion of profits to the treasury, more than paying back the government ’ s initial investment. however, under current terms of the contracts that govern their access to treasury funds, their capital will decline to $ 0 by january 1, 2018. today, fannie mae and freddie mac have more than $ 5 trillion of mbs and corporate debt outstanding, which is widely held and receives various forms of special regulatory treatment. and because of their scale, these enterprises continue to serve as important standard - setters and