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Spahr and Sunderman Published in Premier Journal

For release:  May 8, 2013

Ronald Spahr, Professor of Finance, and Mark Sunderman, Morris Fogelman Chair of Excellence in Real Estate, have a paper, “The U.S. Housing Finance Debacle, Measures to Assure its Non-recurrence and Reform of the Housing GSEs,” forthcoming in the Journal of Real Estate Research, a premier real estate journal.

In this paper, they investigate what caused the failure of Fannie Mae and Freddie Mac and recommend changes to the two GSEs that will help create a stable and sustainable future for housing finance.  They also revisit studies done in the 1990’s by Spahr on the GSEs’ risk to taxpayers, especially his report to the Department of Housing and Urban Development, which predicted solvency problems for the GSEs if subprime mortgages were to proliferate.  Spahr and Sunderman also develop their own data taken from each of the GSEs’ annual reports and find that defaults on subprime mortgages resulted in losses roughly six times the losses incurred on conventional, prime mortgages.  They confirm that the root cause of the recent crisis and failure of the GSEs resulted from the proliferation of these mortgages; although, the recent crisis resulted from a myriad of financial mistakes that created the perfect storm.

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