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The influence of Fannie and Freddie on mortgage loan terms

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  • Alex Kaufman

Abstract

This paper uses a novel instrumental variables approach to quantify the effect that GSE purchase eligibility had on equilibrium mortgage loan terms in the period from 2003 to 2007. The technique is designed to eliminate sources of bias that may have affected previous studies. GSE eligibility appears to have lowered interest rates by about 10 basis points, encouraged fixed-rate loans over ARMs, and discouraged low-documentation and brokered loans. There is no measurable effect on loan performance or on the prevalence of certain types of \"exotic\" mortgages. The overall picture suggests that GSE purchases had only a modest impact on loan terms during this period.

Suggested Citation

  • 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.).
    • Handle: RePEc:fip:fedgfe:2012-33
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    References listed on IDEAS

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