At a Mercatus event on the future of housing finance.

1. In recent decades, the U.S. housing finance system took the “ownership” out of home ownership. Instead of starting out with equity in the form of a 20 percent down payment, we went toward down payments of 5 percent or less. Instead of accumulating equity by gradually paying off a mortgage, we went toward equity extraction with cash-out refinances and home equity loans.

2. In the 1980s, Freddie Mac and Fannie Mae were mostly helpful to the housing finance system. However, as the housing boom took off, they lowered their standards, particularly for down payments.

3. We could return to a system in which Freddie and Fannie play a significant role. However, they should be regulated by the Treasury, with rigorous stress tests.

4. Alternatively, we could phase out Freddie and Fannie (by gradually reducing the size of the mortgages they are allowed to purchase) and let the housing finance system be determined by private behavior.

5. The key to a more stable housing sector is to put the “ownership” back into home ownership. Under no circumstances should any subsidies be given to loans with low down payments, cash-out refinances, or home equity loans. One approach would be to replace FHA with a saving program that helps people accumulate money for a down payment.

6. The 800-pound gorilla in housing policy is the housing lobby. The realtors, home builders, and mortgage bankers all want to see lenient, subsidized mortgage credit. There is no one to oppose them, so housing policy will be all f’d up no matter what the policy wonks propose. It’s F’d up now, dominated by Freddie, Fannie, FHA , and foreclosure forebearance, and it’s likely to remain F’d up for the foreseeable future.