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The influence of Fannie and Freddie on mortgage loan terms

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  • Alex Kaufman
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    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.

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    File URL: http://www.federalreserve.gov/pubs/feds/2012/201233/201233abs.html
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    File URL: http://www.federalreserve.gov/pubs/feds/2012/201233/201233pap.pdf
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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2012-33.

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    Date of creation: 2012
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    Handle: RePEc:fip:fedgfe:2012-33

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    1. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
    2. Andreas Lehnert & Wayne Passmore & Shane M. Sherlund, 2005. "GSEs, mortgage rates, and secondary market activities," Finance and Economics Discussion Series 2005-07, Board of Governors of the Federal Reserve System (U.S.).
    3. Ambrose, Brent W & Buttimer, Richard & Thibodeau, Thomas, 2001. "A New Spin on the Jumbo/Conforming Loan Rate Differential," The Journal of Real Estate Finance and Economics, Springer, vol. 23(3), pages 309-35, November.
    4. Manuel Adelino & Antoinette Schoar & Felipe Severino, 2012. "Credit Supply and House Prices: Evidence from Mortgage Market Segmentation," NBER Working Papers 17832, National Bureau of Economic Research, Inc.
    5. Congressional Budget Office, 2011. "The Budgetary Cost of Fannie Mae and Freddie Mac and Options for the Future Federal Role in the Secondary Mortgage Market," Reports 41487, Congressional Budget Office.
    6. Ambrose, Brent W. & Thibodeau, Thomas G., 2004. "Have the GSE affordable housing goals increased the supply of mortgage credit?," Regional Science and Urban Economics, Elsevier, vol. 34(3), pages 263-273, May.
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