TY  - JOUR
AU  - Jeske,Karsten
AU  - Krueger,Dirk
AU  - Mitman,Kurt
TI  - Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17537
PY  - 2011
Y2  - October 2011
UR  - http://www.nber.org/papers/w17537
L1  - http://www.nber.org/papers/w17537.pdf
N1  - Author contact info:
Karsten Jeske
Mellon Capital Management Corporation
E-Mail: Karstenj@mcm.com

Dirk Krueger
Economics Department
University of Pennsylvania
160 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
Tel: 215/898-6691
Fax: 215/573-2057
E-Mail: dkrueger@econ.upenn.edu

Kurt Mitman
Department of Economics, McNeil 160
3718 Locust Walk
Philadelphia, PA 19104
E-Mail: mitmanke@econ.upenn.edu
AB  - This paper evaluates the macroeconomic and distributional effects of government bailout guarantees for Government Sponsored Enterprises (such as Fannie Mae and Freddy Mac) in the mortgage market. In order to do so we construct a model with heterogeneous, infinitely lived households and competitive housing and mortgage markets. Households have the option to default on their mortgages, with the consequence of having their homes foreclosed. We model the bailout guarantee as a government provided and tax-financed mortgage interest rate subsidy. We find that eliminating this subsidy leads to substantially lower equilibrium mortgage origination and increases aggregate welfare, but has little effect on foreclosure rates and housing investment. The interest rate subsidy is a regressive policy: eliminating it benefits low-income and low-asset households who did not own homes or had small mortgages, while lowering the welfare of high-income, high-asset households.
ER  -