It has been four years since the collapse of Bear Stearns, and the mortgage finance space remains without a meaningful structure to stimulate new lending, Federal Reserve Board Governor Daniel Tarullo suggested this week.

In a speech prepared for the Council on Foreign Relations C. Peter McColough Series on International Economics, Tarullo said regulators and policy makers have addressed some of the unsustainable mortgage practices that led to the crisis, but, to date, no effective system for funding solid home loans has been built to fill the void.  

"To return to, and maintain, a healthy housing market, we will need a healthy system of mortgage finance. That end, in turn, could be much advanced by a public policy debate focused on the cost, availability, and risks associated with mortgage financing that will likely be available under possible combinations of government policies — including all relevant forms of regulation, housing assistance programs, and the critical issue of the future of the government-sponsored enterprises," Tarullo said.

Tarullo also issued a sharp warning about Wall Street reforms, including Dodd-Frank, suggesting a failure to rigorously implement financial reforms will mean the nation has "lost the opportunity to reverse the pre-crisis trajectory of increasing too-big-to-fail risks." 

He advised that while there is a clear set of rules to deal with the too-big-to-fail bank problem, a second challenge remains on the horizon in the shadow banking system.

"Although some elements of pre-crisis shadow banking are probably gone forever, others persist. Moreover, as time passes, memories fade, and the financial system normalizes, it seems likely that new forms of shadow banking will emerge," Tarullo said. "Indeed, the increased regulation of the major securities firms may well encourage the migration of some parts of the shadow banking system further into the darkness — that is, into largely unregulated markets."

Tarullo lamented that four years after the collapse of Bear Stearns so much reform work remains to be done.

"For some time my concern has been that the momentum generated during the crisis will wane or be redirected to other issues before reforms have been completed. As you can tell from my remarks today, this remains a very real concern," he said.