One controversial issue in housing finance is whether to price loans based on borrower risk characteristics. Should high-risk borrowers pay more, and if so, how much more? For the government-sponsored enterprises (GSEs), pricing has become more risk based with the advent of loan-level pricing adjustments, and hence, cross-subsidization—charging low-risk borrowers more to subsidize high-risk borrowers—has declined since GSE conservatorship. In contrast, the Federal Housing Administration (FHA) has flat pricing regardless of borrower risk. This topic is timely given the recent release of the Federal Housing Finance Agency’s proposed rule on enterprise capital.
This seminar explored the extent of current cross-subsidization in GSE pricing and how housing finance reform, whether legislative or administrative, would change what borrowers pay for their mortgage. We examined the interactions among the GSEs, private mortgage insurers, and the FHA, given the important role all three play in determining what borrowers pay. Industry experts, researchers, and government policymakers presented various views on these issues to frame thoughtful conversation.
Scott Frame, Senior Adviser, Federal Reserve Bank of Atlanta
Edward Golding, Nonresident Fellow, Urban Institute
Andrew Rippert, CEO, Global Mortgage Group, Arch Capital Group Ltd.
Mark Zandi, Chief Economist, Moody's Analytics
Teresa Bryce Bazemore, CEO, Bazemore Consulting LLC (moderator)