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originating mortgages and then selling orsecuhtizing them to retain a portion of the <br />risk (or 'skin in the game'). This should apply as well to those creating collateralized <br />debt obligations (CDOs)or the like. <br />If this or similar legislation does pass, it is likely that most mortgage credit will flow <br />largely into the types of loans deemed sound by regulators; originators and secuhtiz- <br />ers are unlikely to be willing to retain much, if any, of the risk and thereby add to their <br />liabilities and required oophaL The result could reduce the volume of mortgage securi- <br />ties in the market and constrain the flow of capital into housing. Some constraint on <br />this flow would be beneficial because one cause of the housing crisis was a flood of too <br />much cheap capital. Overly constraining capital flows tohousing, however, will raise the <br />price of capital and thus the cost of housing. This in turn will reduce housing affordabil- <br />ityl, especially for lower- and mode rate-ii ncome Americans. Unfortunately, it is hard to <br />predict how much legislation such as that proposed would reduce the amount of capital <br />available for housing or raise its price, nor is there agreement on the right amount of <br />capital and the right price needed to maintain robust but stable housing markets. <br />In short, as necessary as reform of Fannie Mae and Freddie Mac is, and as much as regu- <br />latory 'improvements are needed to restore confidence in the American housing finance <br />system among investors here and abroad, these changes will alter the amount and price <br />of capital for the housing markets, affecting who can obtain mortgages and at what prices. <br />This, in turn, will affect housing markets for better or worse for decades to come. <br />11111iilf M!"Fruiol <br />Ifff <br />