The excesses in mortgage lending happened primarily in the private market in 2004 when the GSEs lost market share to banks, said Bank of America Merrill Lynch analysts on a teleconference on housing reform.

"That is where many of the excesses in mortgage lending surface more so than on the GSE books," said Chris Flanagan, head of U.S. mortgage and structured finance research at BofA Merrill.

Flanagan said that, as a result, investors still have risk aversion associated with the private capital component of mortgage lending. This is demonstrated by the excessive credit enhancement and the stricter LTVs on this portion of loans.

He added that the recognition of the GSEs' role in the housing bubble is relevant because this will help the GSEs to "evolve and survive."

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