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Revisiting the Net Benefits of Freddie Mac and Fannie Mae

of the conforming limit for these loans. Using data for 1986–2000, he estimates rate differentials for the whole period and for individual years. In the specification that is most comparable to those used elsewhere in the literature, his estimate of the jumbo-conforming spread for the whole period is 22 basis points.

Wayne Passmore, Shane M. Sherland, and Gillian Burgess, “The Effect of Housing Government-Sponsored Enterprises on Mortgage Rates” (2005). The authors (PSB), all on the staff of the Federal Reserve Board, estimate the jumbo-conforming spread to be small—about 16 basis points between 1997 and 2003—and only weakly related to variation in the spread between yields on the debt of fully private financial firms and yields on GSE debt. A primary theme of PSB’s argument is that however large or small the jumbo-conforming spread may be, much of that amount is due to factors other than GSE activities. In the second stage of their work, PSB estimate that the GSEs’ effect on interest rates is only seven basis points.

Anthony B. Sanders, “Measuring the Benefits of Fannie Mae and Freddie Mac to Consumers: Between De Minimis and Small?” (2005). After reviewing various studies of the jumbo-conforming spread, Professor Sanders turns to the failure of most studies to account for the effect on mortgage rates of subsidies to depositories. Sanders argues that rates on jumbo loans are reduced, perhaps substantially, by these subsidies. After estimating “synthetic” rates for jumbo and conforming loans, he concludes that the conventional jumbo-con- forming spread should be adjusted upward by 43 basis points in order to account for the subsidies to depositories.



Appendix: Recent Literature

David Torregrosa, “Interest Rate Differentials Between Jumbo and Conforming Mortgages, 1995–2000 (2001). This is the study conducted by the CBO to support the Office’s May 2001 report on “Federal Subsidies and the Housing GSEs.” CBO concludes that the differential was between 18 and 25 basis points over the period studied. The study also includes some analysis of the sensitivity of the estimates to alternative specifications.

Macroeconomic Stability

Akash Deep and Dietrich Domanski, “Housing Markets and Economic Growth: Lessons from the U.S. Refinancing Boom” (2002). The authors describe the 2001 refinanc- ing boom in the U.S. and discuss how it helped stabilize the economy. They identify some con- tributors to the extraordinary magnitude of the boom, including GSE automated underwriting and retained portfolios.

Calvin Schnure, “Boom-Bust Cycles in Housing: The Changing Role of Financial Structure” (2005). Schnure, an economist with the IMF, explores the effect of financial structure on instability in U.S. house prices and housing construction. He concludes that home prices under the current structure of securitized mort- gage finance are more stable now than in the past, when lending was funded primarily by bank deposits. The author attributes recent declines in GDP volatility to stabilization in residential investment resulting from the current secondary market structure.

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