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Download the Paper (233 K, PDF file) - June 30, 2005 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing.

ABSTRACT:
This paper evaluates a current policy proposal to limit the size of the retained mortgage portfolios held by Fannie Mae and Freddie Mac (hereafter F&F). The proposal is a response to the growing concerns that the interest rate risks contained in the F&F portfolios create a serious threat to the US financial system. The analysis begins with a review of data on how F&F operate and on the role they play within the US mortgage market. Special attention is paid to the manner in which the firms hedge their interest rate risk. Key questions regarding the policy proposal include (1) what fund sources will replace F&F as mortgage investors, how will the interest rate risk be covered after it is removed from the F&F portfolios, and (3) what is the likely impact of the change on US mortgage interest rates. The conclusion is to endorse legislation that will limit the F&F retained mortgage portfolios.

SUGGESTED CITATION:
Dwight M. Jaffee, "On Limiting the Retained Mortgage Portfolios of Fannie Mae and Freddie Mac" (June 30, 2005). Fisher Center for Real Estate & Urban Economics. Fisher Center Working Papers: Paper 294.
http://repositories.cdlib.org/iber/fcreue/fcwp/294