Housing, mortgage bailout guarantees and the macro economy

Karsten Jeske, Dirk Krueger and Kurt Mitman

Journal of Monetary Economics, 2013, vol. 60, issue 8, 917-935

Abstract: What are the macroeconomic and distributional effects of government bailout guarantees for Government Sponsored Enterprises (e.g., Fannie Mae)? A model with heterogeneous, infinitely lived households and competitive housing and mortgage markets is constructed to evaluate this question. Households can default on their mortgages via foreclosure. The bailout guarantee is a tax-financed mortgage interest rate subsidy. Eliminating this subsidy leads to a large decline in mortgage origination and increases aggregate welfare by 0.5% in consumption equivalent variation, but has little effect on foreclosure rates and housing investment. The interest rate subsidy is a regressive policy: it hurts low-income and low-asset households.

Keywords: Housing; Mortgage market; Default risk; Government-sponsored enterprises (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (71)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:60:y:2013:i:8:p:917-935

DOI: 10.1016/j.jmoneco.2013.09.001

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