A recent story on Bloomberg reported that Treasury officials are leaning toward a specific option outlined in 2011's white paper on the future of the GSEs. While their preferred option is impractical and unworkable, I believe that Fannie and Freddie can be restructured to serve as the foundation for a new mortgage system backed by private capital.

Aside from reducing the government's role in housing finance, any GSE reform effort should avoid disrupting the mortgage and housing markets while maintaining and supporting the operations of the MBS market; despite the financial crisis and its aftermath, it has performed well over the last five-plus years. In particular, the TBA market is a crucial asset; maintaining its integrity and functions should be a priority for policymakers.

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