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Briefing
Assessing GSE Mortgage Portfolios’ Exposure to Past and Future Flood Risk
This article evaluates the exposure of government-sponsored enterprises' (GSEs) mortgage portfolios to flood risks as projected by the First Street Foundation and analyzes the realized impact of Hurricane Irma on mortgage defaults. The analysis leverages extensive GSE data spanning from 1999 to 2023 and utilizes risk projections through 2050 to provide a comprehensive view of both potential future risks and actual past outcomes.
Journal Article
GSE guarantees, financial stability, and home equity accumulation
Before 2008, the government?s ?implicit guarantee? of the securities issued by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac led to practices by these institutions that threatened financial stability. In 2008, the Federal Housing Finance Agency placed these GSEs into conservatorship. Conservatorship was intended to be temporary but has now reached its tenth year, and policymakers continue to weigh options for reform. In this article, the authors assess both implicit and explicit government guarantees for the GSEs. They argue that adopting a legislatively defined ...
Working Paper
Evaluating the Benefits of a Streamlined Refinance Program
Mortgage borrowers who have experienced employment disruptions as a result of the COVID-19 pandemic are unable to refinance their loans to take advantage of historically low market rates. In this article, we analyze the effects of a streamlined refinance (“refi”) program for government-insured loans that would allow borrowers to refinance without needing to document employment or income. In addition, we consider a cash-out component that would allow borrowers to extract some of the substantial housing equity that many have accumulated in recent years.
Working Paper
The federal home loan bank system and U.S. housing finance
This paper examines the role of the Federal Home Loan Bank (FHLB) System in the U.S. housing finance system. This cooperatively owned government-sponsored enterprise has changed markedly over the past 25 years as a result of membership liberalization and the demise of thrift institutions. Today, despite its name, size, and principal activities, the FHLB System actually provides little targeted support to the housing sector. Instead, recent research highlights the role of the FHLB System as a provider of subsidized general liquidity to its members, including the very largest commercial banking ...
Working Paper
The failure of supervisory stress testing: Fannie Mae, Freddie Mac, and OFHEO
Stress testing has recently become a critical risk management and capital planning tool for large financial institutions and their supervisors around the world. However, the one prior U.S. experience tying stress test results to capital requirements was a spectacular failure: the Office of Federal Housing Enterprise Oversight's (OFHEO) risk-based capital stress test for Fannie Mae and Freddie Mac. We study a key component of OFHEO's model?30-year fixed-rate mortgage performance?and find two key problems. First, OFHEO had left the model specification and associated parameters static for the ...
Working Paper
The Failure of supervisory stress testing: Fannie Mae, Freddie Mac, and OFHEO
In the aftermath of the global financial crisis, policymakers in the United States and elsewhere have adopted stress testing as a central tool for supervising large, complex, financial institutions and promoting financial stability. Although supervisory stress testing may confer substantial benefits, such tests are vulnerable to model risk. This paper studies the risk-based capital stress test conducted by the Office of Federal Housing Enterprise Oversight (OFHEO) for Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that are central to the U.S. housing finance ...