Measuring the Benefits of Fannie Mae and Freddie Mac to Consumers: Between De Minimis and Small?

Wharton Financial Institutions Working Paper No. 05-36

16 Pages Posted: 3 Nov 2005

See all articles by Anthony B. Sanders

Anthony B. Sanders

George Mason University - School of Business

Date Written: July 2005

Abstract

Measuring the benefits to consumers from Fannie Mae and Freddie Mac activities has received considerable attention, particularly in recent months. Recently, Federal Reserve Board Chairman Alan Greenspan commented in his U.S. Senate Banking Committee testimony on the Government Sponsored Enterprises that the benefits of Fannie Mae and Freddie Mac as measured by the Jumbo-Conforming mortgage spread was "between de minimis and small." The basis for Greenspan's comment is the seemingly small benefit to consumers in terms of the basis point spread (generally, 20 to 30 basis points). First, the estimates of the benefits may be too low if they fail to consider subsidies to commercial banks. Second, the dollar amount of the benefits to consumers ranges from $6.76 billion based on the Passmore et al (2005) study to quite large ($9.25 billion for the Cotterman and Pearce (1996) study. The adjusted Ambrose, LaCour-Little and Sanders (2004) spread generates benefits in the order of $7.89 billion.

Suggested Citation

Sanders, Anthony Bown, Measuring the Benefits of Fannie Mae and Freddie Mac to Consumers: Between De Minimis and Small? (July 2005). Wharton Financial Institutions Working Paper No. 05-36, Available at SSRN: https://ssrn.com/abstract=830926 or http://dx.doi.org/10.2139/ssrn.830926

Anthony Bown Sanders (Contact Author)

George Mason University - School of Business ( email )

Fairfax, VA 22030
United States

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