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Debt Spreads between GSEs and Other Corporations

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  • Nothaft, Frank E
  • Pearce, James E
  • Stevanovic, Stevan

Abstract

Policy analysis of the housing GSEs--Freddie Mac, Fannie Mae, and the Federal Home Loan Bank System--has largely centered on a comparison of their cost advantages relative to the benefits they provide to consumers and the market. Researchers generally treat their lower funding costs as the largest component of their cost advantage and measure it by a comparison of spreads between yields on non-GSE securities and GSE securities. This paper provides the first econometric analysis of such spreads. Special components of this research are separate analysis of debentures and medium-term notes, a comparison with all financial firms and a banking subsample, and the introduction of liquidity proxies. Comparing Freddie Mac and Fannie Mae debt with non-GSE debt rated AA- gives an estimated range of 27 to 30 basis points without the inclusion of the liquidity proxies, and a range of 22 to 27 basis points with their inclusion, over 1995-2000. Copyright 2002 by Kluwer Academic Publishers

Suggested Citation

  • Nothaft, Frank E & Pearce, James E & Stevanovic, Stevan, 2002. "Debt Spreads between GSEs and Other Corporations," The Journal of Real Estate Finance and Economics, Springer, vol. 25(2-3), pages 151-172, Sept.-Dec.
    • Handle: RePEc:kap:jrefec:v:25:y:2002:i:2-3:p:151-72
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    Cited by:

    1. Gordian Rättich & 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.
    2. Dwight Jaffee & John M. Quigley, 2012. "The Future of the Government-Sponsored Enterprises: The Role for Government in the U.S. Mortgage Market," NBER Chapters, in: Housing and the Financial Crisis, pages 361-417, National Bureau of Economic Research, Inc.
    3. 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.
    4. W. Scott Frame & Kristopher Gerardi & Paul S. Willen, 2015. "The Failure of supervisory stress testing: Fannie Mae, Freddie Mac, and OFHEO," Working Papers 15-4, Federal Reserve Bank of Boston.
    5. 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.).
    6. W. Scott Frame & Larry D. Wall & Lawrence J. White, 2012. "The Devil's in the Tail: Residential Mortgage Finance and the U.S. Treasury," Working Papers 12-12, New York University, Leonard N. Stern School of Business, Department of Economics.
    7. 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.
    8. 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.
    9. Gianluca Marcato, 2018. "Liquidity Pricing of Illiquid Assets," ERES eres2018_215, European Real Estate Society (ERES).
    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, 2009. "The 2008 federal intervention to stabilize Fannie Mae and Freddie Mac," FRB Atlanta Working Paper 2009-13, Federal Reserve Bank of Atlanta.
    12. W. Scott Frame, 2016. "The federal home loan bank system and U.S. housing finance," FRB Atlanta Working Paper 2016-2, Federal Reserve Bank of Atlanta.
    13. John M. Quigley, 2006. "Federal credit and insurance programs: housing," Review, Federal Reserve Bank of St. Louis, vol. 88(Jul), pages 281-310.
    14. Karan Bhanot & Donald Lien & Margot Quijano, 2008. "Will Pulling Out the Rug Help? Uncertainty about Fannie and Freddie’s Federal Guarantee and the Cost of the Subsidy," Working Papers 0035, College of Business, University of Texas at San Antonio.
    15. W. Scott Frame & Lawrence J. White, 2007. "Charter Value, Risk-Taking Incentives, and Emerging Competition for Fannie Mae and Freddie Mac," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(1), pages 83-103, February.
    16. 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.
    17. Gillian Burgess & Wayne Passmore & Shane M. Sherlund, 2005. "The effect of housing government-sponsored enterprises on mortgage rates," Finance and Economics Discussion Series 2005-06, Board of Governors of the Federal Reserve System (U.S.).
    18. 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.
    19. Levitin, Adam & Wachter, Susan, 2012. "Explaining the Housing Bubble," MPRA Paper 41920, University Library of Munich, Germany.
    20. 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.
    21. Ms. Evridiki Tsounta, 2011. "Home Sweet Home: Government's Role in Reaching the American Dream," IMF Working Papers 2011/191, International Monetary Fund.

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