Abstract

http://ssrn.com/abstract=1760199
 
 

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Do the GSEs Expand the Supply of Mortgage Credit? New Evidence of Crowd Out in the Secondary Mortgage Market


Stuart A. Gabriel


University of California, Los Angeles - Anderson School of Management

Stuart S. Rosenthal


Syracuse University - Department of Economics

May 27, 2010

Journal of Public Economics, Forthcoming

Abstract:     
The dramatic government takeover of Fannie Mae and Freddie Mac in September, 2008 was motivated in part by a desire to ensure a continued flow of credit to the mortgage market. This study examines a closely related issue: the extent to which GSE activity crowds out mortgage purchases by private secondary market intermediaries. Evidence of substantial crowd out suggests that government support for the GSEs may be less warranted, whereas the absence of crowd out implies that GSE loan purchases enhance liquidity.

Using 1994-2008 HMDA data for conventional, conforming sized loans, three distinct periods with regard to GSE crowd out are apparent. From 1994-2003, the share of loans sold to the secondary market increased from 60 to over 90 percent, private sector and GSE market shares of loan purchases were roughly similar for most market segments, and IV estimates indicate relatively little GSE crowd out of private secondary market purchases. From 2004 to 2006, private loan purchases boomed and dominated those of the GSEs, while IV estimates indicate crowd out jumped to 50 percent at the peak of the boom. This is especially true in the market for home purchase as opposed to refinance loans. With the crash in housing and mortgage markets in 2007, private sector intermediaries pulled back, the GSEs regained market share, and evidence of GSE crowd out disappeared in both the home purchase loan and refinance markets. These patterns suggest that the degree of GSE crowd out varies with market conditions and that the federal takeover of Fannie Mae and Freddie Mac likely served to enhance liquidity to the mortgage market during the 2007-2009 financial crisis.

Number of Pages in PDF File: 36

Keywords: GSEs, Crowd Out, Liquidity

JEL Classification: H3, G2, R2

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Date posted: February 14, 2011  

Suggested Citation

Gabriel, Stuart A. and Rosenthal, Stuart S., Do the GSEs Expand the Supply of Mortgage Credit? New Evidence of Crowd Out in the Secondary Mortgage Market (May 27, 2010). Journal of Public Economics, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1760199

Contact Information

Stuart A. Gabriel (Contact Author)
University of California, Los Angeles - Anderson School of Management ( email )
110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
310-825-2922 (Phone)
310-206-5455 (Fax)
HOME PAGE: http://www.anderson.ucla.edu
Stuart S. Rosenthal
Syracuse University - Department of Economics ( email )
426 Eggers Hall
Syracuse, NY 13244-1020
United States
315-443-3809 (Phone)
Feedback to SSRN


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