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The Value of Federal Sponsorship: The Case of Freddie Mac

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  • James F. Gatti
  • Ronald W. Spahr
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    Abstract

    The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 attempts to limit the risk borne by the taxpayer due to federal sponsorship of the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal National Mortgage Association by: (1) controlling their range of activities; (2) requiring a level of capital sufficient to absorb substantial losses; and (3) providing a mechanism for closure if capital is insufficient. This article estimates the impact of the capital standards on the value to the FHLMC of federal sponsorship. Although FHLMC's level of capital exceeds requirements, the federal government still bears a nontrivial portion of the FHLMC's risk. Copyright American Real Estate and Urban Economics Association.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/1540-6229.00723
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    Bibliographic Info

    Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

    Volume (Year): 25 (1997)
    Issue (Month): 3 ()
    Pages: 453-485

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    Handle: RePEc:bla:reesec:v:25:y:1997:i:3:p:453-485

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    Cited by:
    1. Lawrence J. White, 2002. "Focusing on Fannie and Freddie: The Dilemmas of Reforming Housing Finance," Working Papers 02-01, New York University, Leonard N. Stern School of Business, Department of Economics.
    2. Edward Kane, 1999. "Housing Finance GSEs: Who Gets the Subsidy?," Journal of Financial Services Research, Springer, vol. 15(3), pages 197-209, May.
    3. Wayne Passmore, 2005. "The GSE implicit subsidy and the value of government ambiguity," Finance and Economics Discussion Series 2005-05, Board of Governors of the Federal Reserve System (U.S.).
    4. Wayne Passmore, 2003. "The GSE implicit subsidy and value of government ambiguity," Finance and Economics Discussion Series 2003-64, Board of Governors of the Federal Reserve System (U.S.).

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