The Influence of Fannie and Freddie on Mortgage Loan Terms

32 Pages Posted: 27 Jun 2012

See all articles by Alex Kaufman

Alex Kaufman

Board of Governors of the Federal Reserve System

Multiple version iconThere are 4 versions of this paper

Date Written: May 5, 2012

Abstract

This paper uses a novel instrumental variables approach to quantify the effect that GSE purchase eligibility had on equilibrium mortgage loan terms in the period from 2003 to 2007. The technique is designed to eliminate sources of bias that may have affected previous studies. GSE eligibility appears to have lowered interest rates by about 10 basis points, encouraged fixed-rate loans over ARMs, and discouraged low-documentation and brokered loans. There is no measurable effect on loan performance or on the prevalence of certain types of "exotic" mortgages. The overall picture suggests that GSE purchases had only a modest impact on loan terms during this period.

Keywords: Government-sponsored enterprises, mortgages

JEL Classification: G21, G28, H81, N22

Suggested Citation

Kaufman, Alex, The Influence of Fannie and Freddie on Mortgage Loan Terms (May 5, 2012). Available at SSRN: https://ssrn.com/abstract=2093337 or http://dx.doi.org/10.2139/ssrn.2093337

Alex Kaufman (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Washington, DC 20551
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