10 Dec Reducing Taxpayer Exposure: Sharing Credit Risk with the Private Sector in Tax
BPC Action believes that while housing is one of the major drivers of the U.S. economy, current federal housing policy is ill-equipped to respond to the many housing challenges facing the U.S. today. We support reforming our broken housing finance system and creating a healthy, stable, and affordable housing market in order to ensure a strong economy and a globally competitive country. The following information is from BPC, our 501 (c) (3) affiliate.
In a housing finance system that includes a government guarantee, private capital that stands in the “first loss” position plays an important role in reducing the risk of taxpayer losses. “First loss” means the private sector stands ahead of the government in guaranteeing the timely payment of principal and interest on mortgage-backed securities (MBS) when borrowers default. On top of providing an important buffer, the presence of private capital brings to the table a third party that is motivated to ensure the loans backing the MBS are properly underwritten, originated, and serviced to minimize losses.