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We describe a set of six design principles for the reorganization of the U.S. housing finance system and apply them to one model for replacing Fannie Mae and Freddie Mac that has so far received frequent mention but little sustained analysis – the lender cooperative utility. We discuss the pros and cons of such a model and propose a method for organizing participation in a mutual loss pool and an explicit, priced government insurance mechanism. We also discuss how these principles and this model are consistent with preserving the “to-be-announced,” or TBA, market – particularly if the fixed-rate mortgage remains a focus of public policy.
For a published version of this report, see Toni Dechario, Patricia Mosser, Joseph Tracy, James Vickery, and Joshua Wright, "A Private Lender Cooperative Model for Residential Mortgage Finance," in Susan Wachter and Marvin Smith, eds., The American Mortgage System: Crisis and Reform, 286-304. (Philadelphia, Pennsylvania: University of Pennsylvania Press, 2011).