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Distributional Implications of Government Guarantees in Mortgage Markets

Author

Listed:
  • Gete, Pedro
  • Zecchetto, Franco

Abstract

We analyze the removal of the credit-risk guarantees provided by the government sponsored enterprises (GSEs) in a model with agents heterogeneous in income and house price risk. We find that wealth inequality increases, driven by higher mortgage spreads and housing rents. Housing holdings become more concentrated. Foreclosures fall. The removal benefits high-income households, while hurting low- and mid-income households (renters and highly leveraged mortgagors with conforming loans). GSE reform requires compensating transfers, sufficiently high elasticity of rental supply, or linking GSE reform with the elimination of the mortgage interest deduction.

Suggested Citation

  • Gete, Pedro & Zecchetto, Franco, 2017. "Distributional Implications of Government Guarantees in Mortgage Markets," MPRA Paper 80643, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:80643
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    File URL: https://mpra.ub.uni-muenchen.de/80643/1/MPRA_paper_80643.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Elenev, Vadim & Landvoigt, Tim & Van Nieuwerburgh, Stijn, 2016. "Phasing out the GSEs," Journal of Monetary Economics, Elsevier, vol. 81(C), pages 111-132.
    2. Gete, Pedro & reher, Michael, 2017. "Mortgage Supply and Housing Rents," MPRA Paper 82856, University Library of Munich, Germany.

    More about this item

    Keywords

    Default; Loan Guarantees; Housing; Inequality; Mortgages; Rents;

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis

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