Finance and Economics Discussion Series (FEDS)

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April 2019

The Marginal Effect of Government Mortgage Guarantees on Homeownership

Serafin J. Grundl and You Suk Kim

Abstract:

The U.S. government guarantees a majority of residential mortgages, which is often justified as a means to promote homeownership. In this paper we use property-level data to estimate the effect of government mortgage guarantees on homeownership, by exploiting variation of the conforming loan limits (CLLs) along county borders. We find substantial effects on government guarantees, but find no robust effect on homeownership. This finding suggests that government guarantees could be considerably reduced with modest effects on homeownership, which is relevant for housing finance reform plans that propose to reduce the government's involvement in the mortgage market by reducing the CLLs.
Accessible materials (.zip)

Keywords: Federal Housing Administration, Government mortgage guarantees, Government-sponsored enterprises, Homeownership

DOI: https://doi.org/10.17016/FEDS.2019.027

PDF: Full Paper

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Last Update: January 09, 2020