Macroeconomic and distributional effects of mortgage guarantee programs for the poor

Jiseob Kim; Yicheng Wang

doi:10.1016/j.jedc.2017.12.005

Macroeconomic and distributional effects of mortgage guarantee programs for the poor

Jiseob Kim, Yicheng Wang

Department of Economics

Research output: Contribution to journal › Article › peer-review

2 Citations (Scopus)

Abstract

Government-driven mortgage guarantee programs (for example, loans insured through the Federal Housing Administration, the Department of Veterans Affairs, and the Rural Housing Service) aim to help financially disadvantaged households buy and own their houses. This study analyzes the macroeconomic and distributional effects of these government programs. We propose a quantitative model where households endogenously choose their mortgage types either with or without government guarantees. Households that take out mortgages with government guarantees pay an up-front insurance premium, while those that choose mortgages without guarantees face borrowing limits. Our results show that a hypothetical decline in government subsidies for mortgage guarantee programs can improve aggregate household welfare, mainly due to endogenous changes in mortgage interest rates and tax burdens, rather than in housing prices. The welfare implications are different across households, depending on their financial status.

Original language	English
Pages (from-to)	124-151
Number of pages	28
Journal	Journal of Economic Dynamics and Control
Volume	87
DOIs	https://doi.org/10.1016/j.jedc.2017.12.005
Publication status	Published - 2018 Feb

Bibliographical note

Funding Information:
We thank the editor and an anonymous referee for extremely valuable comments and advice. We thank Jang-Ok Cho, Jinill Kim, Kjetil Storesletten and seminar participants at the University of Oslo, the Korean Econometric Society seminar, Ewha Womans University, Yonsei University, 2017 Midwest Macroeconomics conference, 2017 Econometric society meeting in Hong Kong, and other universities as well. This work was supported (in part) by the Yonsei University Future-leading Research Initiative of 2017 (2017-22-0037).

Publisher Copyright:
© 2017 Elsevier B.V.

All Science Journal Classification (ASJC) codes

Economics and Econometrics
Control and Optimization
Applied Mathematics

UN SDGs

This output contributes to the following Sustainable Development Goal(s)

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10.1016/j.jedc.2017.12.005

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title = "Macroeconomic and distributional effects of mortgage guarantee programs for the poor",

abstract = "Government-driven mortgage guarantee programs (for example, loans insured through the Federal Housing Administration, the Department of Veterans Affairs, and the Rural Housing Service) aim to help financially disadvantaged households buy and own their houses. This study analyzes the macroeconomic and distributional effects of these government programs. We propose a quantitative model where households endogenously choose their mortgage types either with or without government guarantees. Households that take out mortgages with government guarantees pay an up-front insurance premium, while those that choose mortgages without guarantees face borrowing limits. Our results show that a hypothetical decline in government subsidies for mortgage guarantee programs can improve aggregate household welfare, mainly due to endogenous changes in mortgage interest rates and tax burdens, rather than in housing prices. The welfare implications are different across households, depending on their financial status.",

author = "Jiseob Kim and Yicheng Wang",

note = "Funding Information: We thank the editor and an anonymous referee for extremely valuable comments and advice. We thank Jang-Ok Cho, Jinill Kim, Kjetil Storesletten and seminar participants at the University of Oslo, the Korean Econometric Society seminar, Ewha Womans University, Yonsei University, 2017 Midwest Macroeconomics conference, 2017 Econometric society meeting in Hong Kong, and other universities as well. This work was supported (in part) by the Yonsei University Future-leading Research Initiative of 2017 (2017-22-0037). Publisher Copyright: {\textcopyright} 2017 Elsevier B.V.",

year = "2018",

month = feb,

doi = "10.1016/j.jedc.2017.12.005",

language = "English",

volume = "87",

pages = "124--151",

journal = "Journal of Economic Dynamics and Control",

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AU - Kim, Jiseob

AU - Wang, Yicheng

N1 - Funding Information: We thank the editor and an anonymous referee for extremely valuable comments and advice. We thank Jang-Ok Cho, Jinill Kim, Kjetil Storesletten and seminar participants at the University of Oslo, the Korean Econometric Society seminar, Ewha Womans University, Yonsei University, 2017 Midwest Macroeconomics conference, 2017 Econometric society meeting in Hong Kong, and other universities as well. This work was supported (in part) by the Yonsei University Future-leading Research Initiative of 2017 (2017-22-0037). Publisher Copyright: © 2017 Elsevier B.V.

PY - 2018/2

Y1 - 2018/2

N2 - Government-driven mortgage guarantee programs (for example, loans insured through the Federal Housing Administration, the Department of Veterans Affairs, and the Rural Housing Service) aim to help financially disadvantaged households buy and own their houses. This study analyzes the macroeconomic and distributional effects of these government programs. We propose a quantitative model where households endogenously choose their mortgage types either with or without government guarantees. Households that take out mortgages with government guarantees pay an up-front insurance premium, while those that choose mortgages without guarantees face borrowing limits. Our results show that a hypothetical decline in government subsidies for mortgage guarantee programs can improve aggregate household welfare, mainly due to endogenous changes in mortgage interest rates and tax burdens, rather than in housing prices. The welfare implications are different across households, depending on their financial status.

AB - Government-driven mortgage guarantee programs (for example, loans insured through the Federal Housing Administration, the Department of Veterans Affairs, and the Rural Housing Service) aim to help financially disadvantaged households buy and own their houses. This study analyzes the macroeconomic and distributional effects of these government programs. We propose a quantitative model where households endogenously choose their mortgage types either with or without government guarantees. Households that take out mortgages with government guarantees pay an up-front insurance premium, while those that choose mortgages without guarantees face borrowing limits. Our results show that a hypothetical decline in government subsidies for mortgage guarantee programs can improve aggregate household welfare, mainly due to endogenous changes in mortgage interest rates and tax burdens, rather than in housing prices. The welfare implications are different across households, depending on their financial status.

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Macroeconomic and distributional effects of mortgage guarantee programs for the poor

Abstract

Bibliographical note

All Science Journal Classification (ASJC) codes

UN SDGs

Access to Document

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