Distributional Implications of Government Guarantees in Mortgage Markets

Gete, Pedro; Zecchetto, Franco

doi:10.1093/rfs/hhx083

Cited by 35 publications

(27 citation statements)

References 29 publications

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“…Jeske, Krueger, and Mitman (2013) find that removing government guarantees for the GSEs would help low-income and low-asset households, increase aggregate welfare by 0.5%. In contrast, Gete and Zecchetto (2017) find that abolishing the GSEs would hurt low-and midincome households, help high-income households. Both papers find that the home ownership rate would decrease.…”

Section: Introductionmentioning

confidence: 72%

“…34 Reducing the CLLs to zero could therefore have a substantial effect on the homeownership rate. Our paper is therefore complementary to theoretical papers that simulate counterfactuals in which government guarantees are entirely eliminated such as Jeske, Krueger, and Mitman (2013), Elenev, Landvoigt, and Van Nieuwerburgh (2016) and Gete and Zecchetto (2017).…”

Section: Limitationsmentioning

confidence: 82%

“…Our paper is also complementary to papers that study the effect of the GSEs on the broader economy and the financial system with calibrated models. Jeske, Krueger, and Mitman (2013) and Gete and Zecchetto (2017) study the distributional impacts of the government mortgage guarantees in the economy. Jeske, Krueger, and Mitman (2013) find that removing government guarantees for the GSEs would help low-income and low-asset households, increase aggregate welfare by 0.5%.…”

Section: Introductionmentioning

confidence: 99%

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The Marginal Effect of Government Mortgage Guarantees on Homeownership

Grundl

Kim

2019

FEDS

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The U.S. government guarantees a majority of residential mortgages, which is often justified as a means to promote homeownership. In this paper we use property-level data to estimate the effect of government mortgage guarantees on homeownership, by exploiting variation of the conforming loan limits (CLLs) along county borders. We find substantial effects on government guarantees, but find no robust effect on homeownership. This finding suggests that government guarantees could be considerably reduced with modest effects on homeownership, which is relevant for housing finance reform plans that propose to reduce the government's involvement in the mortgage market by reducing the CLLs.

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Section: Introductionmentioning

confidence: 72%

Section: Limitationsmentioning

confidence: 82%

Section: Introductionmentioning

confidence: 99%

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The Marginal Effect of Government Mortgage Guarantees on Homeownership

Grundl

Kim

2019

FEDS

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“…Other recent work considers other potential consequences of the GSEs for the macroeconomy. Elenev, Landvoigt, and Van Nieuwerburgh (2016) address the consequences of government mortgage guarantees for financial fragility, and both Jeske, Krueger, and Mitman (2013) and Gete and Zecchetto (2018) address the consequences of the GSEs' subsidies for household wealth. 3…”

Section: Related Literaturementioning

confidence: 99%

Concentration in Mortgage Markets: GSE Exposure and Risk-Taking in Uncertain Times

Elul¹,

Gupta²,

Musto³

2020

Working Paper (Federal Reserve Bank of Philadelphia)

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When home prices threaten to decline, lenders bearing more of a community's mortgage risk have an incentive to combat this decline with new lending that boosts demand.We test whether this incentive drove the government-sponsored enterprises (GSEs) to guarantee riskier mortgages in early 2007, as the chance of substantial declines grew from small to significant. To identify the effect we relate new risky lending to regional variation in the GSEs' exposure and the interaction of this variation with home-price elasticity. We focus on the GSEs' discretion across potential purchases by reference to the credit-score threshold that triggers manual underwriting. We conclude that this incentive helps explain the GSEs' expansion of risky lending shortly before the financial crisis.

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“…11 In a recent model similar to Jeske, Krueger, and Mitman (2013), Gete and Zecchetto (2015) argue that the poor, high-credit risk households suffer a disproportionate increase in the cost of mortgage credit from an abolition of GSEs, offsetting the reduction in inequality emphasized by Jeske et al…”

Section: Introductionmentioning

confidence: 99%

Phasing Out the GSEs

Landvoigt¹,

Nieuwerburgh²,

Elenev³

2015

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We develop a new model of the mortgage market where both borrowers and lenders can default. Risk tolerant savers act as intermediaries between risk averse depositors and impatient borrowers. The government plays a crucial role by providing both mortgage guarantees and deposit insurance. Underpriced government mortgage guarantees lead to more and riskier mortgage originations as well as to high financial sector leverage. Mortgage crises occasionally turn into financial crises and government bailouts due to the fragility of the intermediaries' balance sheets. Increasing the price of the mortgage guarantee "crowds in" the private sector, reduces financial fragility, leads to fewer but safer mortgages, lowers house prices, and raises mortgage and risk-free interest rates. Due to a more robust financial sector, consumption smoothing improves and aggregate welfare increases. While borrowers are nearly indifferent to a world with or without mortgage guarantees, savers are substantially better off. While aggregate welfare increases, so does wealth inequality.

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Distributional Implications of Government Guarantees in Mortgage Markets

Cited by 35 publications

References 29 publications

The Marginal Effect of Government Mortgage Guarantees on Homeownership

The Marginal Effect of Government Mortgage Guarantees on Homeownership

Concentration in Mortgage Markets: GSE Exposure and Risk-Taking in Uncertain Times

Phasing Out the GSEs

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