The originator bank should retain some of the risk, thereby still having the incentive to select creditworthy borrowers; it should pay a suitable fee for the issue of the guarantee, commensurate with the quality of the underlying loans.
In the housing sector, activity continues to weaken. Although sales of existing homes have been about unchanged this year, sales of new homes have continued to fall, and inventories of unsold new homes remain high. In response, homebuilders continue to scale back the pace of housing starts. Home prices are falling, particularly in regions that experienced the largest price increases earlier this decade.