Are the government-sponsored enterprises (GSEs) justified?

Abstract

Recent studies provide evidence that the government-sponsored enterprises (GSEs) might not be justified under a rigorous and innovative framework of cost-benefit analysis. The policy implication is that the GSEs might have finished their historical mission of building the secondary mortgage market, but now with a mature secondary mortgage market, they might not be beneficial any more – maybe it is the time for them to exit.

Keywords:

• conforming loan
• conforming loan limit
• government-sponsored enterprise (GSE)
• jumbo loan
• jumbo-conforming spread

Acknowledgments

The authors thank Jennifer C. An, Alan J. Auerbach, Dwight M. Jaffee, Thomas W. Sanchez (the editor of this journal), Feila Zhang, and two anonymous referees for their helpful comments.

Notes

1. These advantages are reviewed in Mankiw (2002) and US Congressional Budget Office (2001).

2. For the concept of adverse selection, please refer to Akerlof (1970).