The Influence of Fannie and Freddie on Mortgage Loan Terms

25 Pages Posted: 20 May 2014

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: Summer 2014

Abstract

This article uses a novel instrumental variables approach to quantify the effect that government‐sponsored enterprise (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 ten 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.

Suggested Citation

Kaufman, Alex, The Influence of Fannie and Freddie on Mortgage Loan Terms (Summer 2014). Real Estate Economics, Vol. 42, Issue 2, pp. 472-496, 2014, Available at SSRN: https://ssrn.com/abstract=2439001 or http://dx.doi.org/10.1111/1540-6229.12030

Alex Kaufman (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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