NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Phasing Out the GSEs

Vadim Elenev, Tim Landvoigt, Stijn Van Nieuwerburgh

NBER Working Paper No. 21626
Issued in October 2015
NBER Program(s):AP, CF, EFG, ME

We develop a new model of the mortgage market where both borrowers and lenders can default. Risk tolerant savers act as intermediaries between risk averse depositors and impatient borrowers. The government plays a crucial role by providing both mortgage guarantees and deposit insurance. Underpriced government mortgage guarantees lead to more and riskier mortgage originations as well as to high financial sector leverage. Mortgage crises occasionally turn into financial crises and government bailouts due to the fragility of the intermediaries' balance sheets. Increasing the price of the mortgage guarantee "crowds in" the private sector, reduces financial fragility, leads to fewer but safer mortgages, lowers house prices, and raises mortgage and risk-free interest rates. Due to a more robust financial sector, consumption smoothing improves and aggregate welfare increases. While borrowers are nearly indifferent to a world with or without mortgage guarantees, savers are substantially better off. While aggregate welfare increases, so does wealth inequality.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21626

Published: Elenev, Vadim & Landvoigt, Tim & Van Nieuwerburgh, Stijn, 2016. "Phasing out the GSEs," Journal of Monetary Economics, Elsevier, vol. 81(C), pages 111-132. citation courtesy of

Users who downloaded this paper also downloaded* these:
Leeper w21822 Fiscal Analysis is Darned Hard
Cúrdia and Woodford w21820 Credit Frictions and Optimal Monetary Policy
Card and Giuliano w21519 Can Universal Screening Increase the Representation of Low Income and Minority Students in Gifted Education?
Ball w20185 Long-Term Damage from the Great Recession in OECD Countries
Agarwal, Amromin, Chomsisengphet, Landvoigt, Piskorski, Seru, and Yao w21512 Mortgage Refinancing, Consumer Spending, and Competition: Evidence from the Home Affordable Refinancing Program
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us