Download Off-Balance-Sheet Federal Liabilities

Housing loan guarantees
• 1934: Congress established Federal
Housing Administration (FHA) to insure
some privately-issued mortgages
• 2012: FHA insured $213 B in new
mortgages
• Other home loans insured by Veterans
Housing Benefit Program and Rural
Housing Services
Government-sponsored enterprises
• 1938: Congress established Federal National
Mortgage Association (Fannie Mae) to buy FHAinsured mortgages
• 1968: split into Government National Mortgage
Association (assist lower-income households)
and Fannie Mae (private corporation)
• 1970: Congress chartered Federal Home Loan
Mortgage Corporation (Freddie Mac) to compete
with Fannie Mae
• Exempt from certain taxes, unclear bankruptcy
process
• Fannie and Freddie issued debt (popularly
called “agency debt”)
• debt explicitly stated it was not backed by U.S.
Treasury
• CBO (2001): GSEs would have had to pay
0.41% higher borrowing rate if investors
regarded them as purely private
• 2008: Government took insolvent Fannie and
Freddie into conservatorship, recapitalized with
$100 B each
Retained mortgage portfolios of
Fannie and Freddie (billions of $)
1000
900
800
700
600
Fannie
500
Freddie
400
300
200
100
0
1990
1992
1994
1996
1998
2000
2002
Sum = $1.5 T in 2004
2004
2006
• In addition, the GSEs would buy
mortgages, package them into mortgagebacked securities and sell these to other
investors with guarantee against default
• 2007: $2.7 T in MBS guarantees
• 2006: $70 B in net equity
• 2008: Fannie and Freddie required to
include guarantees in total liabilities (but
still completely off federal balance sheet)
MBS as percent of GDP
Source:http:/econbrowser.com/archives/2010/04/follow_the_mone
8
Flow chart for how private mortgage securitization
worked
$
Manager
%
$
sell loan Originator
sell loan
$
Arranger
Trust
%
AAA
Investors
%
%
AA or A
9
Asset-backed commercial paper
(billions of dollars)
U.S. home ownership rate (in
percent)
70
68
66
64
62
60
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Total mortgage debt as percent of
GDP
120
100
80
60
40
20
0
1950
1960
1970
1980
1990
2000
2010
Shiller’s real house price index,
1890-2012
250
200
150
100
50
0
1880
1900
1920
1940
1960
1980
2000
2020
Percent of U.S. mortgage debt
associated with different sectors
70
60
banks, S&Ls
GSE & agency
insurance
ABS
households
other
50
40
30
20
10
0
1950
1960
1970
1980
1990
2000
2010