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Revisiting the Net Benefits of Freddie Mac and Fannie Mae

Table of Contents

Introduction and Summary

1

Today’s Mortgage Markets

3

Mortgage Market Participants

3

The Role of Freddie Mac and Fannie Mae 5

The Policy Debate over GSE Activities

8

The Residential Mortgage-backed Securities Market

8

The Unique Benefits of GSE Securitization

9

Risks of GSE Retained Portfolios

11

Benefits from the Retained Portfolio

13

Freddie Mac and Fannie Mae Contributions to National Goals

15

Reducing Mortgage Interest Rates

15

Improving Other Mortgage Contract erms

17

Increasing Macroeconomic Stability

19

Promoting Important Social Goals

21

Systemic Risk and the Retained Portfolio 30

Estimating the Direct Benefits of Freddie Mac and Fannie Mae

22

The CBO and Federal Reserve Studies

22

The GSE Funding Advantage

23

Direct Benefits to Homeowners

23

Conclusions

27

Appendix: Recent Literature

29

Benefits of the Retained Portfolio

29

Jumbo-Conforming Spread

32

Macroeconomic Stability

33

Social Benefits

34

Quantifying Benefits from Federal Sponsorship

35

Role of the GSEs—Policy Recommendations

36

References

38

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