A Congressional Budget Office (CBO) report Wednesday analyzed various proposals for housing finance reform, saying "the weaknesses inherent in the pre-crisis model may argue against returning to that model."

The CBO report comes as several lawmakers push to make reform of the government-sponsored enterprises a high priority in the next congressional session.

The analysis said despite potential benefits from "federal involvement in the secondary mortgage market," the implicit guarantees for Fannie Mae and Freddie Mac before their 2008 conservatorships led to too much market power and hidden risk to taxpayers.

"Because the federal guarantee was implicit rather than explicit, the costs and risks to taxpayers did not appear in the federal budget," the CBO said.

"That lack of transparency made it more difficult for policymakers to assess and control the GSEs' costs and risks."

The report analyzed three potential alternatives: a "hybrid" public/private model involving explicit federal guarantees of privately issued mortgages and securities, a "fully public model" in which a government entity would back qualifying loans and a "fully private model" with no federal backing.

Rather than settling on one approach, the report weighed the pros and cons of each.
"Any new approach would need to confront major design issues, such as whether to have federal guarantees and, if so, how to structure and price them; whether to support affordable housing and, if so, by what means; and how to structure and regulate the secondary market," the report said.

The report can be found here.

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