Government-sponsored Enterprises Research Articles

Interrupted rhythms and uncertain futures: Mortgage finance and the (spatio-) temporalities of climate breakdown

ABSTRACT As intensifying climate-related disasters strike cities across the United States, they are provoking rising concern for the stability of the U.S. housing market and broader financial system. How homeowners, mortgage lenders, federal institutions/regulators, and investors will variously encounter and manage climate risk is an urgent question for urban scholars, as is who might bear the costs of restabilizing mortgage finance under new breakdowns. This paper’s multi-scalar intervention draws on financial “following” methods to explore how climate risks are being experienced and governed at multiple illustrative moments of U.S. mortgage finance: (1) working households at the front line of urban climate impacts, (2) mortgage professionals brokering loans to them, (3) government-sponsored enterprises (GSEs) negotiating incoming federal climate risk disclosure requirements, and (4) capital markets off-taking GSE risks through financial derivatives like credit risk transfers. Emerging concerns include ruptures between household risks and financial system-preserving responses and new dangers of “climate redlining.”

“They Can Never Take it Away from You”

Abstract This article uses the contradictions and complicity of conclusions to think through the United States’ collective student loan burden while grounding this burden at its historical roots in the mid-twentieth century. In particular, it is concerned with the impasse surrounding the Biden administration's conclusion of the federal student loan payment pause and demands for full student loan debt cancellation. Reading with Lauren Berlant's Cruel Optimism, it suggests that this impasse entails a relation of optimistic cruelty: the active infliction of the affective and material conditions of capital as a means of leverage over oneself and others to maintain a status quo. Attendantly, this article draws attention to the centrality of liquidity/discipline to the conditions of indebtedness within financial capital, highlighting three foundational developments in the emergence of student loan debt: the creation of the Guaranteed Student Loan Program as the country's first universal program of student loans in 1965; the establishment of the Student Loan Marketing Association as a government-sponsored enterprise to provide private liquidity for the federal program in 1972; and the successful push to enact bankruptcy reforms to protect the viability of Sallie Mae from the early 1970s on. The establishment of liquidity/discipline at the industry's inception has allowed student loan indebtedness to flourish into the present and highlights the optimistic cruelty of concluding the federal payment pause to enforce a wholly insufficient status quo.

Influence of Government Sponsored Enterprise Funds-Credit Services on the Growth of Group-Based Micro and Small Enterprises in Kenya

The purpose of this study was to analyse the influence of Government Sponsored Enterprise credit services on the growth of group-based Micro and Small Enterprises in Kenya. The study was anchored on Resource based theory and Entrepreneurial orientation theory. A concurrent triangulation mixed methodology design was adopted for this study. The target population comprised of 51 officers from Government Sponsored Enterprise Funds and 600 group leaders of group based Micro and small Enterprises who are beneficiaries of Youth Enterprise Development Fund, Women Enterprise Funds and Uwezo Fund in Nairobi County since 2013. The study used proportionate stratified random sampling for the group based enterprises and census for Government Sponsored Enterprise Funds officers. The study Sample size of 240 leaders of group based enterprises was calculated using Yamanes formula and a census of 51 officers of Government Sponsored Enterprise Funds. The study collected primary data using questionnaires and interviews. The study used both qualitative and quantitative statistics. Qualitative data was analyzed thematically along the study objectives and presented in narrative and verbatim form while quantitative data was analyzed using descriptive and inferential statistics. The descriptive analysis included mean, frequencies, percentages and standard deviation while the inferential analysis undertaken was simple linear regression to establish the relationship between credit services and the growth of Micro Small Enterprises. It also assessed the mediating role of group characteristics on the relationship between credit services and the growth of Micro and Small Enterprises in Kenya. Quantitative data was presented using tables. The study found that credit services have a significant influence on the growth of group-based MSEs in Nairobi County, Kenya. Group characteristics partially mediate the relationship between credit services and MSE growth. The study recommends increasing funding limits, empowering group leaders, aligning fund requirements with group-owned enterprises, and developing policies that recognize their unique needs.

Beyond origination charges: The pass-through of GSE upfront fee adjustments in 2022

In 2022, a policy increased mortgage guarantee fees for government-sponsored enterprises (GSE) purchases in high-cost areas. Given that the adjustment is specific to selected loan types, we employ a difference-in-differences approach to evaluate the shifts in origination charges for affected mortgages relative to unaffected ones. We find that the increases in origination charges only encapsulate a minor fraction of the escalated costs faced by lenders. Instead, lenders appear to adapt by elevating the interest rates. This research illuminates an unforeseen response from lenders and underscores the necessity for nuanced strategies in housing finance policy formulation.

Emergence of subprime lending in minority neighborhoods

AbstractSubprime lending is concentrated in minority neighborhoods. However, the literature provides little evidence for what led to this concentration. We use the endorsement of credit scores in mortgage underwriting by the Government Sponsored Enterprises (GSEs) in 1995 to answer this question. We show that prime lenders were substituted by subprime lenders in minority neighborhoods. As a result, the share of subprime lending increased by 5 percentage points in minority neighborhoods, relative to nonminority neighborhoods. Prime lenders with a stronger relationship with the GSEs reduced their lending in minority neighborhoods more, and the level of securitization by the GSEs in minority neighborhoods also decreased.

Mortgage Costs as a Share of Housing Costs—Placing the Cost of Credit in Broader Context

Housing affordability is a key policy concern and an important component of sustainable homeownership. It follows that reducing housing costs without increasing the risk of mortgage default is a critical approach to sustaining homeownership for current and future generations. In this paper, we break down the different elements of housing costs, specifically focusing on the nuances of mortgage costs. We use internal Fannie Mae data to establish a pro forma of housing costs for different owner-occupant borrower profiles over a typical ownership period (all homebuyers, first-time homebuyers [FTHBs], and low-income first-time homebuyers [LI FTHBs]). We find that the biggest contributors to overall housing costs are transactions costs, ongoing utility expenses, property taxes, home improvement costs, and the component of the mortgage interest rate that compensates investors for the time value of money, with utilities and home improvement costs particularly conspicuous for FTHBs and LI FTHBs. The guaranty fees charged by the government-sponsored enterprises and private mortgage insurance are estimated to be less than 6% of the cost of homeownership. These general patterns hold across racial and ethnic groups, although mortgage insurance alone is roughly 6% of total costs for Black and Hispanic FTHBs and LI FTHBs compared to 2% for white FTHBs and LI FTHBs. Overall, our findings suggest that nonmortgage housing costs are key areas that policymakers should focus on to reduce housing costs and foster sustained homeownership rates.

Federal Home Loan Banks and Financial Stability

Abstract The Federal Home Loan Banks (FHLBs) are the less well-known siblings of Fannie Mae and Freddie Mac. Since these government-sponsored enterprises were created in 1932, changes in housing finance markets have rendered largely irrelevant their original purpose of increasing the availability of mortgages. Yet the level and scope of their activities have increased dramatically in recent decades. These activities have at times both exacerbated risks to financial stability and obstructed the missions of federal financial regulators. Behind these undesirable outcomes lies the public/private hybrid nature of the FHLBs. The private ownership and control of the FHLBs provide an incentive to take advantage of the considerable public privileges from which they benefit—including an explicit line of credit from the United States Government and an implied guarantee of all their debt similar to that enjoyed by Fannie Mae and Freddie Mac before the Global Financial Crisis. This article examines past incidence and future potential for the FHLBs to amplify financial stability risks. It offers a framework for regulatory reform by the Federal Housing Finance Agency to contain these risks and avoid harmful interference with the activities of other federal regulators.

Lenders’ pricing strategy: Do neighborhood risks matter?

AbstractThis article explores the different pricing strategies of lenders who originate both government‐sponsored enterprise (GSE) and non‐GSE loans. We find that conditional on loan and borrower characteristics and some observable local economic factors, mortgage rates on GSE loans vary significantly across regions. However, we observe no sizable regional variation in loan amounts or default risk. By contrast, the mortgage rates on non‐GSE loans depend almost entirely on borrowers and loan characteristics. In addition, we find that spatial variations in GSE mortgage rates are highly responsive to regional prepayment risk. Our results are robust to various controls for neighborhood characteristics, including regional‐level bank competition, borrower accessibility to mortgages, and household income levels. Overall, the findings offer a novel insight into how lenders adjust pricing strategies in response to a changing lending environment. The results provide implications relating to the present and imminent dangers of housing bubbles and the intensified refinancing wave following the COVID‐19 pandemic.

Blocking DCIR mitigates colitis and prevents colorectal tumors by enhancing the GM-CSF-STAT5 pathway.

Dendritic cell immunoreceptor (DCIR; Clec4a2), a member of the C-type lectin receptor family, plays important roles in homeostasis of the immune and bone systems. However, the intestinal role of this molecule is unclear. Here, we show that dextran sodium sulfate (DSS)-induced colitis and azoxymethane-DSS-induced intestinal tumors are reduced in Clec4a2-/- mice independently of intestinal microbiota. STAT5 phosphorylation and expression of Csf2 and tight junction genes are enhanced, while Il17a and Cxcl2 are suppressed in the Clec4a2-/- mouse colon, which exhibits reduced infiltration of neutrophils and myeloid-derived suppressor cells. Granulocyte-macrophage colony-stimulating factor (GM-CSF) administration ameliorates DSS colitis associated with reduced Il17a and enhanced tight junction gene expression, whereas anti-GM-CSF exacerbates symptoms. Furthermore, anti-NA2, a ligand for DCIR, ameliorates colitis and prevents colorectal tumors. These observations indicate that blocking DCIR signaling ameliorates colitis and suppresses colonic tumors, suggesting DCIR as a possible target for the treatment of these diseases.

The impact of current and former REOs across owner types: the case of Detroit

This article examines home price spillovers associated with the number of nearby current and former real estate owned (REO) properties. The effect of active REOs is decomposed into the contributions of properties owned by the government sponsored enterprises (GSEs), US Department of Housing and Urban Development (HUD), and private entities to assess impacts associated with differences in managing REO inventories. The impact of former REOs is decomposed into spillovers associated with investor and owner-occupied properties. This study draws on home sale price data in the Detroit tri-county area 2008–2013. Results indicate REOs owned by HUD and private entities are associated with substantial discounts, with the largest effects appearing after remaining in REO inventory for more than one year. Investor-owned properties are associated with sustained and growing negative price effects through more than three years of ownership. Policies ensuring adequate oversight of REOs and sales to owner-occupants and non-speculative investors are encouraged.

To Securitize or to Price Credit Risk?

AbstractDo lenders securitize or price loans in response to credit risk? Exploiting exogenous variation in regional credit risk due to foreclosure law differences along U.S. state borders, we find that lenders securitize mortgages that are eligible for sale to the government-sponsored enterprises (GSEs) rather than price regional credit risk. For non-GSE-eligible mortgages with no GSE buyback provision, lenders increase interest rates as they are unable to shift credit risk to loan purchasers. The results inform the debate surrounding the GSEs’ buyback provisions, the constant interest rate policy, and show that underpricing regional credit risk increases the GSEs’ debt holdings.

Does Giving CRA Credit for Loan Purchases Increase Mortgage Credit in Low-to-Moderate Income Communities?

Under the Community Reinvestment Act (CRA) banks can fulfill their affirmative obligation to meet local credit needs by lending in low-to-moderate-income (LMI) communities or by purchasing loans made by others. This paper evaluates whether giving CRA credit for purchases has had its intended effect of increasing LMI credit availability by making LMI loans more liquid. Analyses using a regression discontinuity design show that CRA increases loan purchases without affecting LMI originations. Instead, banks purchase loans that are temporarily diverted from the Government Sponsored Enterprises, which provides little benefit to the communities the CRA is meant to help.

Entrenchment or Retrenchment: The Political Economy of Mortgage Debt Subsidies in the United States and Germany

Why do mortgage subsidies vary across countries? Until the 2000s, the U.S. and Germany provided large-scale subsidies for homeownership. Yet, their paths diverged when they faced deep economic crises at that time. While the U.S. doubled down on government support by quasi-nationalizing its mortgage market, Germany retrenched homeowner subsidies. This article argues that growth regimes shape coalitional logics that explain these contrasting outcomes. In the U.S. demand-led regime, where housing is key to growth, a bipartisan coalition entrenched mortgage subsidies to stimulate household credit and consumption. Germany's export-led regime, where housing is less central to growth, produced a broad-based coalition that retrenched homeowner subsidies to boost competitiveness. Detailed case studies contrast the quasi-nationalization of U.S. government-sponsored enterprises (GSEs) with the retrenchment of the German "homeowner subsidy" (Eigenheimzulage).

Racial Disparities in Mortgage Lending: New Evidence Based on Processing Time

Abstract This paper examines racial disparities in mortgage processing time prior to the global financial crisis. We find that Black borrowers are underrepresented and experience a longer processing time than white borrowers among the mortgages securitized by government-sponsored enterprises (GSEs). At the same time, Black borrower are overrepresented and face a similar processing time among privately securitized (PLS) mortgages. Additionally, Black borrowers are strongly associated with faster segments of the mortgage markets, faster lenders within each segment, and the types of loan products that are processed faster, all of which subsequently experienced higher defaults. (JEL G01, G21, G23, G32, R30)

The E ect of Government-Sponsored Enterprise Participation on Syndicated Loan Spreads

The E ect of Government-Sponsored Enterprise Participation on Syndicated Loan Spreads

Manufacturing Advantage: War, the State, and the Origins of American Industry, 1776–1848

Manufacturing Advantage: War, the State, and the Origins of American Industry, 1776–1848

Mortgage Finance and Climate Change: Securitization Dynamics in the Aftermath of Natural Disasters

Abstract Using the government-sponsored enterprises’ sharp securitization rules, this paper provides evidence that, in the aftermath of natural disasters, lenders are more likely to approve mortgages that can be securitized, thereby transferring climate risk. The identification strategy uses the time-varying conforming loan limits above which the government-sponsored enterprises do not securitize mortgages. Natural disasters lead to more securitization right below the limit, suggesting an increased option value of securitization. A model identified using indirect inference simulates increasing disaster risk without GSEs. Mortgage credit supply would decline in flood zones and lenders would have a greater incentive to screen mortgages.

Uniform Mortgage Regulation and Distortion in Capital Allocation

Abstract The federal mortgage policy, the conforming loan limit (CLL), was spatially uniform before the 2008 crisis, despite remarkable heterogeneity across geography. I show that in areas that experienced a larger decline in the jumbo loan share following an increase in the CLL, lenders raised jumbo loan approval rates, lowered mortgage rates to defend short-term market share, extended credit to riskier borrowers, and incurred deteriorated asset quality in the long run. This result is not explained away by credit supply or demand changes, the bunching effect, or reverse causality. Instead, my evidence is consistent with a competition channel: the effect of CLL increases on jumbo loan credit expansion is significantly exaggerated in a more competitive jumbo-lending market. Overall, my findings suggest that the securitization policies of the government-sponsored enterprises can induce spillovers on the jumbo market segment and influence credit allocation.

Lenders’ Pricing Strategy: Do Neighborhood Risks Matter?

This paper explores the different pricing strategies of lenders who originate both government-sponsored enterprise (GSE) and non-GSE loans. We find that, conditional on loan and borrower characteristics and some observable local economic factors, mortgage rates on GSE loans vary significantly across regions. However, no sizable regional variation is observed in the loan amount or default risk. By contrast, the mortgage rates on non-GSE loans depend almost entirely on borrowers and loan characteristics. In addition, spatial variations in GSE mortgage rates are highly responsive to regional prepayment risk. The results are robust to various controls for neighborhood characteristics, including regional-level bank competition, household income, and racial composition. Overall, the findings offer a novel insight into how lenders adjust pricing strategies in response to a changing lending environment. It provides implications for the present and imminent dangers of housing bubbles predictions and the intensified refinancing wave following the COVID-19 pandemic.

Why Wasn’t there a Nonbank Mortgage Servicer Liquidity Crisis?

In March 2020, in the early days of the COVID-19 pandemic, many were concerned about the liquidity of nonbank mortgage servicers. As it turned out, the vast majority of these servicers did not face a liquidity crisis. In this Commentary I detail the reasons why, including lower than expected take up rates of forbearance, the role played by mortgage origination income, and the actions taken by the government-sponsored enterprises, Ginnie Mae, and housing agencies.