NEW YORK ( Minyanville) -- Since mortgage giants Fannie Mae and Freddie Mac collapsed in September 2008, housing experts and policy wonks alike have searched for a way forward with these two crucial pillars of the housing market. But each proposed solution -- whether it includes a break up, wind down, privatization or some combination of all three -- fails to address the root of the problem: too much debt. We don't need just need to figure out what to do with Fannie and Freddie. Rather, we need a sustainable system for financing residential real estate that is not so heavily reliant on debt. Equity sharing, the process by which a third-party investor injects risk capital to the housing transaction in exchange for a partial equity stake in the property, is one such possible solution. Fannie and Freddie, with their implicit (turned explicit) government backing, drove down the cost of mortgage debt, expanded the availability of credit, and helped fuel home price appreciation. This worked great, until it didn't. The system became highly unstable and ultimately crashed, largely due to the excessively high levels of debt Americans had used to purchase homes.
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