The private market could struggle to meaningfully absorb the capacity GSEs currently provide to the U.S. housing market, said Fitch Ratings in a report today on the housing finance reform proposal.

"U.S. banks may struggle to provide significant financing capacity, given both the likely persistence of 30-year fixed rate mortgages, which pose interest rate risk management challenges, and the leverage ratio, which limits balance sheet growth," analysts wrote. "Additionally, during times of stress, bank funding costs are likely to escalate, as evidenced by the ramp-up in credit default swap spreads for U.S. banks during the financial crisis"

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