The gse implicit subsidy and value of government ambiguity
By: Wayne Passmore.
Series: Finance and economics discussion series ;; 2003-64; Finance and economics discussion series (Online) ;; 2003-64.
Publisher: Federal Reserve Board
Published: 2003
Place of publication: Washington, D.C
Language: eng
Format: Electronic resource
Description: "The housing-related government-sponsored enterprises Fannie Mae and Freddie Mac (the "GSEs") have an ambiguous relationship with the federal government.  Most purchasers of the GSEs' debt securities believe that this debt is implicitly backed by the U.S.  government despite the lack of a legal basis for such a belief.  In this paper, I estimate how much GSE shareholders gain from this ambiguous government relationship.  I find that (1) the federal government's implicit subsidy of Fannie Mae and Freddie Mac has resulted in a funding advantage for the GSEs over private sector institutions, (2) the actions of GSEs result in slightly lower mortgage rates for some homeowners, (3) the government's ambiguous relationship with Fannie Mae and Freddie Mac imparts a substantial implicit subsidy to GSE shareholders, (4) the implicit government subsidy accounts for much of the GSEs' market value, (5) the GSEs would hold far fewer of their mortgage-backed securities in portfolio and their capital-to-asset ratios would be higher if they were purely private, and (6) the GSEs' implicit subsidy does not appear to have substantially increased homeownership or homebuilding"--Federal Reserve Board web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 7/20/2004.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.