The Marginal Effect of Government Mortgage Guarantees on Homeownership

Abstract

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.

Improving Affordable Housing Delivery Through Private Developers in Lagos State

“…One of the common implicit devices that the government uses to subsidise housing through private investors are mortgage bailout guarantees. The model has been deemphasized over time and in some instances described as regressive [22] and of little impact [23]. The major reason for the rejection of the model is the increased rates of foreclosure in the instances studied.…”

The Propagation of Demand Shocks Through Housing Markets

“…The existing empirical literature on the effects of policy on home sales has focused on specific policies implemented during the most recent housing downturn (Berger et al (2016), Best and Kleven (2017), Grundl and Kim (2018)). Since policy makers have many tools to stimulate housing demand and can implement them at any time, it is important to understand the stimulative effects of policy more generally and how the effects vary with market conditions.…”

Leaving Households Behind: Institutional Investors and the U.S.Housing Recovery

“…After 2008, the Economic Stimulus Act revised the methodology so that the conforming limit is tied to the cost of living in a given county. As in Loutskina and Strahan (2015), we calculate the percentage of mortgage loan applications that had an amount within 5 percent +/-of the federal limit prior to 2008 and within 5 percent of the average county limit excluding its own county post 2008 as in Gete and Reher (forthcoming) 18.…”

“…Grundl and Kim (2018) study the marginal effect of lowering government mortgage guarantees and find that lowering the limit increased the government guarantee significantly but homeownership rates modestly.…”