This is the Cator Daily Podcast for Tuesday, February 11th, 2020.

I'm Caleb Brown.

What role do the feds play in compelling financial institutions to extend mortgage credit

and then keep those mortgages on their books?

The Consumer Financial Protection Bureau is looking at eliminating some income requirements

for a given level of borrowing.

Cato's Diego Ziluaga walks us through the Byzantine system of rules that govern home lending.

Who governs the standards that apply to the issuance of mortgages in the United States?

I know that banks have rules that they themselves adopted because they want to do well by their shareholders,

but in terms of what's required, who governs?

Well, Caleb, as ever in the US when it comes to financial regulation, several different entities are involved.

In the first place, in terms of Consumer Protection Bureau, issues a set of regulations that govern what sort of mortgages are exempt from potential liability for lenders, meaning that if something bad happened in the future, could the borrower then sue the financial institution for having missold them a product.

The Bureau sets the standards by which financial institutions can make themselves exempt if they issue a particular kind of product.

In addition to that, the Federal Housing Finance Agency is the regulator of Fannie Mae and

Freddie Mac, which as many listeners will know, purchase about 50% of single-family mortgages

currently originated in the United States.

And as major purchasers, they have a role in setting underwriting standards as well

because whatever they're willing to

purchase is what a lot of lenders will originate.

And the FHFA is currently acting not only as the regulator, but as the owner of Fannie

and Freddie, because the government bailed Fannie and Freddie out in 2008 and these entities are still in government conservatorship.

So the FHFA also has a role.

...