explicit, voted on transparently and carefully targeted to the intended beneficiaries : potential homeowners most in need and for whom such support will bring success. many of you might question whether a system with greatly reduced subsidies will work. a partial answer to this question can be found in international comparisons. a recent study, for instance, found that in terms of homeownership rates, the united states ranked only 17th out 26 economically advanced countries. many countries have achieved higher homeownership rates without – and perhaps because they don ’ t have – many of the special privileges of u. s. housing finance, such as gses, minimal down payments, 30 - year fixed - rate loans and mortgage interest tax deductions. to this list, we could also add non - recourse debt instruments, government promotion of “ creative and flexible financing, ” the ability to prepay loans, affordable housing goals and similar government housing programs. in making these remarks, i am not suggesting we do away with all support for housing. i am saying it is time for change.

from the federal reserve, some want a continuation of near - zero interest rates for an extended period and greater investments in mortgage instruments. in sharp contrast to that view, others suggest that the financial crisis has exposed a number of critical flaws in our housing policies and mortgage finance system that call for a significant “ re - look ” at how we finance this industry. for instance, paul volcker, who was chairman of the federal reserve during a portion of the 1980s real estate crisis, recently described the u. s. mortgage industry as “ dysfunctional ” and a “ creature of the government ” that needs reform. the options seem to fall out to either rebuilding a system backed by extensive public support, subsidies and other protections, or build a new framework that returns housing finance to greater reliance on private market forces. i support a policy path that returns the housing industry toward greater market discipline and greater long - run stability. this path requires a greatly reduced role for governmental intervention and public subsidies that have distorted the market over recent decades. the american public, including aspiring homeowners and those of you employed in the housing industry, might be best served, over time, by reducing or removing these subsidies as part of our national policy. there are several factors that argue for making such a change in policy. first, the crisis clearly shows that a mortgage finance system based on expanding the incentives and opportunities to take on more debt with little equity places households at significant financial risk and creates unsustainable trends in housing expansion. second, such policies create harmful distortions within the economy, and they are enormously expensive in terms of both their explicit and implicit costs, to both taxpayers and homeowners, especially when things go badly. many of the subsidies directed toward housing have been extremely inefficient, with other parties capturing most of the benefits rather than homeowners. moreover, with the growing federal budget deficits and the many interests that will be intensely competing for public funds, it is unrealistic to expect that all can be accommodated or that housing can continue to command the same portion of public funds and levels of taxpayer support and exposure. in brief, housing policy is badly flawed, and today ’ s budget environment requires reform. fix freddie and fannie what specific steps should we take? the first and most obvious step is to reform the two housing finance vehicles of fannie mae and freddie mac. these two institutions were responsible for more than half of all u. s. mortgages passed through the system