A Microeconomic Model of Federal Home Loan Mortgage Corporation Activity

Abstract

residential construction seems to have worsened in recent years despite rapid growth of the FCA's, which have at times accounted for over one-third of all Federal borrowing activity.2 This situation has generated substantial concern among public policymakers and academic researchers over the behavior of the FCA's and over their effectiveness in meeting their public policy goals (see Goldfeld, Jaffee, and Quandt [2], Grebler [3], Hearings [5], Hendershott and Villani [6], Jaffee and Rosen [7], Kaufman [8], Rosen [10], Rosen and Kearl [11], and Silber [12]). However, there has not yet been any systematic attempt to evaluate the behavior and effectiveness of the most recently created and most rapidly growing of the FCA's-the Federal Home Loan Mortgage Corporation (FHLMC). The objective of this paper is to provide a microeconomic analysis of the FHLMC. Section II presents a brief institutional background on the FHLMC. Section III sets out a demand-supply model of FHLMC mortgage purchase activities. Section IV presents and discusses estimates of several versions of the model developed in Section III, and Section V summarizes and presents the conclusion of the paper.