Finance and Economics Discussion Series

<p>The U.S. mortgage crisis that began in 2007 generated questions about the role played by Fannie Mae and Freddie Mac the Government-Sponsored Enterprises (GSEs) in its causes. Some have claimed that the Affordable Housing Goals (AHGs) introduced by Congress through the GSE Act of 1992 and the resulting purchases of single-family mortgages the GSEs made to meet those goals drove lending to high-risk borrowers. Using regression discontinuity analysis I measure the effect of one of the goals the Underserved Areas Goal (UAG) on the number of whole single-family mortgages purchased by the GSEs in targeted census tracts from 1996 to 2002. Focusing additionally on tracts that became UAG-eligible in 2005-2006 when the Department of Housing and Urban Development (HUD) began to determine eligibility using the 2000 Census I measure the effect of the UAG on the GSEs' whole single-family mortgage purchases during peak years for the subprime mortgage market. Under the first approach I estimate that the GSEs purchased 0 to 3 percent more goal-eligible mortgages than they would have without the UAG in place. Under the second approach I estimate this effect to be 2.5 to 5 percent. The results suggest a small UAG effect and challenge the view that the goals caused the GSEs to supply substantially more credit to high-risk borrowers than they otherwise would have supplied. Although the goals may have spurred the GSEs to purchase more multi-family mortgages and REMICs than they otherwise would have my analyses suggest that the GSEs' purchases of whole single-family mortgages to satisfy the goals did not drive the subprime lending boom of 2002-2006.</p><p>This work has been selected by scholars as being culturally important and is part of the knowledge base of civilization as we know it. This work was reproduced from the original artifact and remains as true to the original work as possible. Therefore you will see the original copyright references library stamps (as most of these works have been housed in our most important libraries around the world) and other notations in the work.</p><p>This work is in the public domain in the United States of America and possibly other nations. Within the United States you may freely copy and distribute this work as no entity (individual or corporate) has a copyright on the body of the work.</p><p>As a reproduction of a historical artifact this work may contain missing or blurred pages poor pictures errant marks etc. Scholars believe and we concur that this work is important enough to be preserved reproduced and made generally available to the public. We appreciate your support of the preservation process and thank you for being an important part of keeping this knowledge alive and relevant.</p>