Abstract:Unlike other developed countries, the U.S. has a high proportion of long-term fixed-rate mortgages (30 years). This is partly because the Government Sponsored Enterprises (GSE), which operate in the secondary mortgage market, reduce the interest rate of these contracts. This document measures the cost and studies the consequences of such policy. GSE's actions are modeled as an interest rate subsidy applied directly to 30-year mortgages, in the context of a general equilibrium model with two types of agents, ho… Show more
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