Susan Wachter Testifies Before Congress on the Future of Housing Finance and Credit Risk Transfer

On April 22, 2026, Penn Institute for Urban Research (Penn IUR) Co-Director and Wharton Professor Susan Wachter testified before the U.S. House Committee on Financial Services, offering expert analysis on how credit risk transfer (CRT) mechanisms can strengthen the resilience and transparency of the U.S. housing finance system.

Wachter’s testimony, “Credit Risk Transfers: Stability & Transparency in the U.S. Mortgage System,” was delivered as part of the hearing, “Diversifying Risk: Benefits of Reinsurance and Credit Risk Transfers,” convened by the Subcommittee on Housing and Insurance. The hearing brought together policymakers and industry experts to examine how risk-sharing tools can distribute concentrated financial exposure across private markets, reducing reliance on taxpayer-backed guarantees. 

Bipartisan Focus on Taxpayer Protection in Fannie Mae and Freddie Mac Privatization

Set against the backdrop of a rare bipartisan push to protect taxpayers in the context of potential government-sponsored enterprise (GSE) privatization, the hearing carried unusual urgency. The Trump administration’s active pursuit of Fannie Mae and Freddie Mac privatization has elevated the stakes of ongoing policy debates, prompting renewed attention to how risk is allocated across the housing finance system.

What Are Credit Risk Transfers (CRTs) and Why Do They Matter?

Drawing on decades of research, Wachter emphasized that CRTs have emerged as a “cornerstone of post-crisis housing finance reform” since their introduction by the Federal Housing Finance Agency in 2012. These instruments allow GSEs to transfer portions of mortgage credit risk to private investors, thereby reducing taxpayer exposure while enhancing market discipline. The GSEs have issued nearly $150 billion of CRT bond since 2013, covering more than $5 trillion of principal value. Wachter notes that by offloading credit risk to the private sector, CRTs, together with mortgage-backed securities (MBS), which similarly pass interest and prepayment risk on to investors, functionally privatize these GSE risks. 

How CRTs Improve Stability and Transparency in the U.S. Mortgage System

A central theme of Wachter’s testimony was the informational value of CRT markets. Unlike traditional indicators such as defaults or foreclosures—which materialize only after distress is underway—CRTs provide continuous, market-based pricing of mortgage credit risk. This forward-looking function enables investors and policymakers to identify emerging vulnerabilities earlier and more accurately. As Wachter noted, CRTs operate as an “informed market,” incorporating real-time assessments of borrower risk and macroeconomic conditions into pricing signals that can serve as an early warning system for systemic instability. 

The Role of Private Capital in Reducing Taxpayer Exposure

Wachter also distinguished between two complementary CRT channels. In reinsurance-based CRTs, insurers and reinsurers assume mortgage credit risk through structured agreements. In capital markets CRTs, risk is transferred via tradable securities that provide ongoing price discovery and transparency. Together, these mechanisms broaden the base of risk-bearing participants while improving liquidity and resilience across the housing finance system. 

Susan Wachter’s Research Informing National Housing Policy

Her testimony stood out in what the Congressional Intelligence Platform Legis 1 described as “the hearing’s most forward-looking exchange,” where she was praised for offering a “clear directive” on the role CRTs should play in a reformed housing finance system. The recognition underscores Wachter’s influence in shaping a bipartisan policy conversation at a moment when consensus on housing finance reform and other policy issues is rare.

Penn IUR Convenes Bipartisan Experts on the Future of the GSEs

Wachter prepared for this policy inflection point. Earlier this fall, she convened a bipartisan group of housing experts at Penn Washington to examine pathways for GSE privatization, culminating in a policy brief on the future of Fannie Mae and Freddie Mac. Her testimony, citing this research, reflects Penn IUR’s core mission: to translate rigorous, interdisciplinary research into actionable insights for policymakers navigating complex urban and economic challenges.

Why Forward-Looking Credit Risk Signals Matter for Financial Stability

Wachter concluded that CRTs play a critical role in modern housing finance by redistributing risk to private capital, improving the pricing of credit risk, and complementing capital buffers held by GSEs. Preserving and expanding these markets, she argued, will be essential to promoting long-term financial stability and supporting sustainable homeownership.

A leading authority on housing finance, Wachter has authored more than 200 publications and previously served as Assistant Secretary for Policy Development and Research at the U.S. Department of Housing and Urban Development. She continues to play a central role in shaping national housing policy through her research, public engagement, and Congressional testimony.