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The Future of the Government-Sponsored Enterprises: The Role for Government in the U.S. Mortgage Market

In: Housing and the Financial Crisis

Author

Listed:
  • Dwight Jaffee
  • John M. Quigley

Abstract

This paper analyzes options for reforming the U.S. housing finance system in view of the failure of Fannie Mae and Freddie Mac as government sponsored enterprises (GSEs). The options considered include GSE reform, a range of possible new governmental mortgage guarantee plans, and greater reliance on private mortgage markets. The analysis also considers the likely consequences of adopting alternative roles for government in the U.S. housing and mortgage markets. We start by reviewing the history of the GSEs and their contributions to the operation of U.S. housing and mortgage markets, including the actions that led to their failure in conjunction with the recent mortgage market crisis. The reform options we consider include those proposed in a 2011 U.S. Treasury White Paper, plans for new government mortgage guarantees from various researchers and organizations, and the evidence from Western European countries for the efficacy of private mortgages markets.
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Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberch:12625
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    References listed on IDEAS

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    1. Peter J. Wallison, 2011. "Dissent from the Majority Report of the Financial Crisis Inquiry Commission," Books, American Enterprise Institute, number 50848.
    2. Aaronson, Daniel, 2000. "A Note on the Benefits of Homeownership," Journal of Urban Economics, Elsevier, vol. 47(3), pages 356-369, May.
    3. Deborah Lucas, 2010. "Measuring and Managing Federal Financial Risk," NBER Books, National Bureau of Economic Research, Inc, number luca07-1.
    4. Dietz, Robert D. & Haurin, Donald R., 2003. "The social and private micro-level consequences of homeownership," Journal of Urban Economics, Elsevier, vol. 54(3), pages 401-450, November.
    5. Passmore, Wayne & Sparks, Roger & Ingpen, Jamie, 2002. "GSEs, Mortgage Rates, and the Long-Run Effects of Mortgage Securitization," The Journal of Real Estate Finance and Economics, Springer, vol. 25(2-3), pages 215-242, Sept.-Dec.
    6. repec:aei:rpbook:24944 is not listed on IDEAS
    7. Munch, Jakob Roland & Rosholm, Michael & Svarer, Michael, 2008. "Home ownership, job duration, and wages," Journal of Urban Economics, Elsevier, vol. 63(1), pages 130-145, January.
    8. 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.
    9. Gabriel, Stuart A. & Rosenthal, Stuart S., 2010. "Do the GSEs expand the supply of mortgage credit? New evidence of crowd out in the secondary mortgage market," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 975-986, December.
    10. Oswald Andrew J., 1996. "A Conjecture on the Explanation for High Unemployment in the Industrialized Nations : Part I," The Warwick Economics Research Paper Series (TWERPS) 475, University of Warwick, Department of Economics.
    11. Diana Hancock & Wayne Passmore, 2010. "An analysis of government guarantees and the functioning of asset-backed securities markets," Finance and Economics Discussion Series 2010-46, Board of Governors of the Federal Reserve System (U.S.).
    12. repec:aei:rpaper:26126 is not listed on IDEAS
    13. Wayne Passmore & Shane M. Sherlund & Gillian Burgess, 2005. "The Effect of Housing Government-Sponsored Enterprises on Mortgage Rates," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 33(3), pages 427-463, September.
    14. Peter J. Wallison, 2011. "A dissent from the majority report of the financial crisis inquiry commission," Proceedings 1118, Federal Reserve Bank of Chicago.
    15. 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.
    16. 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 309-335, November.
    17. James E. Pearce & James C. Miller, 2001. "Freddie Mac and Fannie Mae: their funding advantage and benefits to consumers," Proceedings 737, Federal Reserve Bank of Chicago.
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    Citations

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    Cited by:

    1. Alex Kaufman, 2014. "The Influence of Fannie and Freddie on Mortgage Loan Terms," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(2), pages 472-496, June.
    2. W. Scott Frame & Larry D. Wall & Lawrence J. White, 2012. "The devil's in the tail: residential mortgage finance and the U.S. Treasury," FRB Atlanta Working Paper 2012-12, Federal Reserve Bank of Atlanta.
    3. Torres, Ernani & Zeidan, Rodrigo, 2016. "The life-cycle of national development banks: The experience of Brazil's BNDES," The Quarterly Review of Economics and Finance, Elsevier, vol. 62(C), pages 97-104.
    4. John Y. Campbell, 2013. "Mortgage Market Design," Review of Finance, European Finance Association, vol. 17(1), pages 1-33.
    5. repec:wsi:qjfxxx:v:01:y:2011:i:04:n:s2010139211000213 is not listed on IDEAS
    6. Victor Couture & Jessie Handbury, 2017. "Urban Revival in America, 2000 to 2010," NBER Working Papers 24084, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G2 - Financial Economics - - Financial Institutions and Services
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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