Sponsored Enterprises (such as Fannie Mae and Freddy Mac) in the mortgage market. In order to do so we construct a model with … heterogeneous, infinitely lived households and competitive housing and mortgage markets. Households have the option to default on … provided and tax-financed mortgage interest rate subsidy. We find that eliminating this subsidy leads to substantially lower …

-sponsored enterprises. We construct a model with competitive housing and mortgage markets in which the government provides banks with … insurance against aggregate shocks to mortgage default risk. We use this model to evaluate aggregate and distributional impacts … equilibrium housing investment, higher mortgage default rates, and lower welfare. The welfare effects of this policy vary …