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GSEs, Mortgage Rates, and Secondary Market Activities

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Author Info

  • Andreas Lehnert

    ()

  • Wayne Passmore

    ()

  • Shane Sherlund

    ()

Abstract

Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that securitize mortgages and issue mortgage-backed securities (MBS). In addition, the GSEs are active participants in the secondary mortgage market on behalf of their own investment portfolios. Because these portfolios have grown quite large, portfolio purchases (in addition to MBS issuance) are often thought to be an important force in the mortgage market. Using monthly data from 1993 to 2005 we estimate a VAR model of the relationship between GSE secondary market activities and mortgage interest rate spreads. We find that GSE portfolio purchases have no significant effects on either primary or secondary mortgage rate spreads. Further, we examine GSE activities and mortgage rate spreads in the wake of the 1998 debt crisis, and find that GSE portfolio purchases did little to affect interest rates paid by new mortgage borrowers. This empirical finding is robust to alternative identification assumptions and to alternative model and variable specifications.

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File URL: http://hdl.handle.net/10.1007/s11146-007-9047-5
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Bibliographic Info

Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

Volume (Year): 36 (2008)
Issue (Month): 3 (April)
Pages: 343-363

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Handle: RePEc:kap:jrefec:v:36:y:2008:i:3:p:343-363

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Web page: http://www.springerlink.com/link.asp?id=102945

Related research

Keywords: Mortgage finance; Government-sponsored enterprises; Financial stability; H81; G18; G21;

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References

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Citations

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Cited by:
  1. Andreas Lehnert & Wayne Passmore & Shane Sherlund, 2008. "GSEs, Mortgage Rates, and Secondary Market Activities," The Journal of Real Estate Finance and Economics, Springer, vol. 36(3), pages 343-363, April.
  2. Dwight Jaffee & John M. Quigley, 2011. "The Future of the Government Sponsored Enterprises: The Role for Government in the U.S. Mortgage Market," NBER Working Papers 17685, National Bureau of Economic Research, Inc.
  3. Iancu, Aurel, 2013. "Financialisation: Structure, Extent, Consequences," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 172-192, June.
  4. John M. Quigley, 2006. "Federal credit and insurance programs: housing," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 281-310.
  5. Deng, Yongheng & Gabriel, Stuart A. & Sanders, Anthony B., 2011. "CDO market implosion and the pricing of subprime mortgage-backed securities," Journal of Housing Economics, Elsevier, vol. 20(2), pages 68-80, June.
  6. Robert A. Eisenbeis & W. Scott Frame & Larry D. Wall, 2006. "An analysis of the systemic risks posed by Fannie Mae and Freddie Mac and an evaluation of the policy options for reducing those risks," Working Paper 2006-02, Federal Reserve Bank of Atlanta.
  7. Tatom, John A., 2008. "New actions on the housing and financial crises—do no harm?," MPRA Paper 9823, University Library of Munich, Germany.
  8. Richard K. Green & Susan M. Wachter, 2005. "The American Mortgage in Historical and International Context," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 93-114, Fall.
  9. IANCU, Aurel, 2013. "Extending Financialisation and Increasing Fragility of the Financial System," Working Papers of National Institute of Economic Research 130307, National Institute of Economic Research.
  10. Diana Hancock & Wayne Passmore, 2012. "The Federal Reserve's portfolio and its effects on mortgage markets," Finance and Economics Discussion Series 2012-22, Board of Governors of the Federal Reserve System (U.S.).
  11. Patrick Honohan, 2008. "Bank Failures: The Limitations of Risk Modelling," The Institute for International Integration Studies Discussion Paper Series iiisdp263, IIIS.
  12. Alex Kaufman, 2012. "The influence of Fannie and Freddie on mortgage loan terms," Finance and Economics Discussion Series 2012-33, Board of Governors of the Federal Reserve System (U.S.).

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