Changing the Scope of GSE Loan Guarantees: Estimating Effects on Mortgage Pricing and Availability

Journal of Real Estate Finance and Economics (2022)

43 Pages Posted: 18 Aug 2021 Last revised: 9 Jun 2022

See all articles by Alexei Alexandrov

Alexei Alexandrov

Independent; affiliation not provided to SSRN

Thomas S. Conkling

Consumer Financial Protection Bureau

Sergei Koulayev

Consumer Financial Protection Bureau

Date Written: April 17, 2022

Abstract

Using a novel combination of mortgage datasets, we analyze the effects of two policy levers influencing the scope of Fannie Mae and Freddie Mac's (Government-Sponsored Enterprises, GSEs) involvement in the U.S. residential mortgage market. First, we find that small changes in mortgage guarantee fees charged by the GSEs were essentially fully passed through to consumers, with limited effects on mortgage demand. This implies that small fee changes are primarily transfers between mortgage consumers and taxpayers while the GSEs remain in federal conservatorship. Second, the data suggest that marginally lowering maximum conforming loan size limits would cause most affected consumers to reduce their loan amounts to the new maximum. Our findings provide new detailed evidence on how GSE policy shapes mortgage availability and contrast the differing effects on consumers of two potential policy levers to reduce (or increase) the scope of GSE lending. Additional survey data indicate that borrowers' shopping behavior and incomplete information may also influence the effects of GSE policy changes.

Keywords: Mortgage, Pricing, GSE, Pass-through, Underwriting

JEL Classification: G21, G28, H81, L32

Suggested Citation

Alexandrov, Alexei and Alexandrov, Alexei and Conkling, Thomas S. and Koulayev, Sergei, Changing the Scope of GSE Loan Guarantees: Estimating Effects on Mortgage Pricing and Availability (April 17, 2022). Journal of Real Estate Finance and Economics (2022), Available at SSRN: https://ssrn.com/abstract=3904868 or http://dx.doi.org/10.2139/ssrn.3904868

Alexei Alexandrov

Independent

affiliation not provided to SSRN

Thomas S. Conkling (Contact Author)

Consumer Financial Protection Bureau ( email )

United States

Sergei Koulayev

Consumer Financial Protection Bureau ( email )

United States

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