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
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: Suggested Citation