The news that Redwood Trust andJPMorgan Chase have entered into risk-sharing deals with Fannie Mae suggests that coming changes to the housing finance system will increase access to credit for qualified borrowers and help to restore a healthy housing market.

The deals reinforce Federal Housing Finance Agency director Mel Watt's recent pledge to infuse more private capital into the housing system. The firms will issue government-backed mortgage securities that transfer the first layer of credit losses from the GSEs to investors. These deals lessen risk to taxpayers while reducing guarantee fees, helping to lower mortgage costs for borrowers. The Mortgage Bankers Association believes that this risk-sharing model, if broadly adopted, could generate several meaningful benefits for the U.S. mortgage market.

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