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Measuring Potential GSE Funding Advantages

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  • Ambrose, Brent W
  • Warga, Arthur

Abstract

As the size of government sponsored enterprises (GSE) has grown, attention has focused on the relationship between the federal government and the GSEs, with particular attention focused on estimating the impact of this relationship on GSE debt costs. Quantifying the GSEs' cost advantage is a controversial exercise with several competing methodologies providing divergent values. Thus, this paper reviews the methods that have been utilized in previous studies and recommends an alternative approach that overcomes many of the criticisms of previous work. By using offering yields on GSE debt, we find that the three housing GSEs enjoyed an average advantage of between 25 and 29 basis points over "AA" banking sector bonds, between 43 and 47 basis points over "A" rated bonds, and between 76 and 80 basis points over "BBB" rated banking issues. We find that our results are robust to both the basic approach taken as well as to model specification. Copyright 2002 by Kluwer Academic Publishers

Suggested Citation

  • Ambrose, Brent W & Warga, Arthur, 2002. "Measuring Potential GSE Funding Advantages," The Journal of Real Estate Finance and Economics, Springer, vol. 25(2-3), pages 129-150, Sept.-Dec.
  • Handle: RePEc:kap:jrefec:v:25:y:2002:i:2-3:p:129-50
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    Citations

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    Cited by:

    1. Lawrence J. White & W. Scott Frame, 2004. "Emerging Competition and Risk-Taking Incentives at Fannie Mae and Freddie Mac," Working Papers 04-02, New York University, Leonard N. Stern School of Business, Department of Economics.
    2. Gordian R├Ąttich & Kim Clark & Evi Hartmann, 2011. "Performance measurement and antecedents of early internationalizing firms: A systematic assessment," Working Papers 0031, College of Business, University of Texas at San Antonio.
    3. King, Tao-Hsien Dolly, 2007. "Are embedded calls valuable? Evidence from agency bonds," Journal of Banking & Finance, Elsevier, vol. 31(1), pages 57-79, January.
    4. Frame, W. Scott, 2016. "The federal home loan bank system and U.S. housing finance," FRB Atlanta Working Paper 2016-2, Federal Reserve Bank of Atlanta.
    5. W. Scott Frame & Andreas Fuster & Joseph Tracy & James Vickery, 2015. "The Rescue of Fannie Mae and Freddie Mac," Journal of Economic Perspectives, American Economic Association, vol. 29(2), pages 25-52, Spring.
    6. Valentin Bolotnyy, 2014. "The Government-Sponsored Enterprises and the Mortgage Crisis: The Role of the Affordable Housing Goals," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(3), pages 724-755, September.
    7. John M. Quigley, 2006. "Federal credit and insurance programs: housing," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 281-310.
    8. Frame, W. Scott & Gerardi, Kristopher S. & Willen, Paul S., 2015. "The Failure of supervisory stress testing: Fannie Mae, Freddie Mac, and OFHEO," Working Papers 15-4, Federal Reserve Bank of Boston.
    9. 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.).
    10. Adam Ashcraft & Morten L. Bech & W. Scott Frame, 2010. "The Federal Home Loan Bank System: The Lender of Next-to-Last Resort?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(4), pages 551-583, June.
    11. W. Scott Frame, 2003. "Federal Home Loan Bank mortgage purchases: Implications for mortgage markets," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 17-31.
    12. W. Scott Frame & Larry D. Wall, 2002. "Financing housing through government-sponsored enterprises," Economic Review, Federal Reserve Bank of Atlanta, issue Q1, pages 29-43.
    13. W. Scott Frame & Lawrence J. White, 2005. "Fussing and Fuming over Fannie and Freddie: How Much Smoke, How Much Fire?," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 159-184, Spring.
    14. Deborah Lucas & Robert McDonald, 2010. "Valuing Government Guarantees: Fannie and Freddie Revisited," NBER Chapters,in: Measuring and Managing Federal Financial Risk, pages 131-154 National Bureau of Economic Research, Inc.
    15. Robert Eisenbeis & W. Frame & Larry Wall, 2007. "An Analysis of the Systemic Risks Posed by Fannie Mae and Freddie Mac and An Evaluation of the Policy Options for Reducing Those Risks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 31(2), pages 75-99, June.
    16. Lawrence J. White & W. Scott Frame, 2009. "The Federal Home Loan Bank System: Current Issues in Perspective," Working Papers 09-18, New York University, Leonard N. Stern School of Business, Department of Economics.
    17. Loutskina, Elena, 2011. "The role of securitization in bank liquidity and funding management," Journal of Financial Economics, Elsevier, vol. 100(3), pages 663-684, June.
    18. Lucas, Deborah & McDonald, Robert L., 2006. "An options-based approach to evaluating the risk of Fannie Mae and Freddie Mac," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 155-176, January.
    19. W. Scott Frame, 2009. "The 2008 federal intervention to stabilize Fannie Mae and Freddie Mac," FRB Atlanta Working Paper 2009-13, Federal Reserve Bank of Atlanta.
    20. Dwight Jaffee, 2003. "The Interest Rate Risk of Fannie Mae and Freddie Mac," Journal of Financial Services Research, Springer;Western Finance Association, vol. 24(1), pages 5-29, August.

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