The EMFA says a EU-sponsored entity – like the US’s Fannie Mae or Freddie Mac – would help to create a continent-wide, liquid, mortgage-backed securities (MBS) market. This, its proponents say, would give homeowners cheap fixed rate loans, remove credit risk from banks’ balance sheets and provide standardised instruments for investors.
But the proposal has brought a storm of criticism that European government-sponsored entities (GSEs) would damage the development of existing covered bond and mortgage-backed securities markets. Critics have been almost universal in criticising a dirigiste American model that would choke a successfully developing freewheeling European system.