FHA, Fannie Mae, Freddie Mac, and the Great Recession

47 Pages Posted: 25 Apr 2016

See all articles by Wayne Passmore

Wayne Passmore

Board of Governors of the Federal Reserve System

Shane M. Sherlund

Federal Reserve Board of Governors

Date Written: 2016-04-12

Abstract

Did government mortgage programs mitigate the adverse economic effects of the financial crisis? We find that counties with greater participation in traditional government mortgage programs experienced less severe economic downturns during the Great Recession. In particular, counties with higher levels of participation in FHA, Fannie Mae, and Freddie Mac lending had relatively smaller increases in mortgage delinquency rates; smaller declines in purchase originations, home sales, home prices, and new automobile purchases; and smaller increases in unemployment rates. These results hold both in 2009 (soon after the peak of the financial crisis) and in 2014 (six years after the crisis). The persistence of better economic outcomes in these counties is consistent with a view that mortgage originators' access to a liquidity outlet (in this case, government-backed securitization) is key to maintaining credit flows and economic growth during financial turmoil.

Keywords: Financial crisis, Great Recession, Government policy, Mortgages

JEL Classification: G01, G21, G28

Suggested Citation

Passmore, Wayne and Sherlund, Shane M., FHA, Fannie Mae, Freddie Mac, and the Great Recession (2016-04-12). FEDS Working Paper No. 2016-031. Available at SSRN: https://ssrn.com/abstract=2769213 or http://dx.doi.org/10.17016/FEDS.2016.031r1

Wayne Passmore (Contact Author)

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Shane M. Sherlund

Federal Reserve Board of Governors ( email )

20th and C Streets, NW
Mailstop 93
Washington, DC 20551
United States
202-452-3589 (Phone)
202-728-5887 (Fax)

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