{"title":"Got Hurt for What You Paid? Revisiting Government Subsidy in the U.S. Mortgage Market","authors":"Yunhui Zhao","doi":"10.1080/09277544.2021.2009620","DOIUrl":null,"url":null,"abstract":"<p><b>Abstract</b></p><p>Using a screening model with asymmetric information, I evaluate the positive and normative effects of the subsidized default insurance policy in the U.S. mortgage market. The model implies that the subsidy raises interest rates for eligible mortgages, which is <i>contrary</i> to conventional wisdom but is consistent with the empirical evidence in Zhao (<span>2019<span><span tabindex=\"0\"></span><span></span> <span>Zhao, <span>Y.</span></span> (<span>2019</span>). <span>Evidence of government subsidy on mortgage rate and default: Revisited</span>. <i>Journal of Housing Research</i>, <i>28</i>(1), <span>23</span>–<span>49</span>. https://doi.org/10.1080/10835547.2019.12092157<span><span>[Taylor & Francis Online]</span> <span>, [Google Scholar]</span></span></span></span>). Moreover, the model implies that the subsidy hurts borrowers it was intended to help, as well as raises the aggregate mortgage default rate. My article highlights the adverse impact of the subsidy on welfare and financial stability, and sheds light on the <i>root</i> cause of the global financial crisis. It also provides potentially useful reference to other countries that have (or are considering adopting) a mortgage subsidy mechanism similar to that in the US.</p>","PeriodicalId":35888,"journal":{"name":"Journal of Real Estate Literature","volume":null,"pages":null},"PeriodicalIF":0.0000,"publicationDate":"2022-01-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Real Estate Literature","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1080/09277544.2021.2009620","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"Social Sciences","Score":null,"Total":0}
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Abstract
Using a screening model with asymmetric information, I evaluate the positive and normative effects of the subsidized default insurance policy in the U.S. mortgage market. The model implies that the subsidy raises interest rates for eligible mortgages, which is contrary to conventional wisdom but is consistent with the empirical evidence in Zhao (2019Zhao, Y. (2019). Evidence of government subsidy on mortgage rate and default: Revisited. Journal of Housing Research, 28(1), 23–49. https://doi.org/10.1080/10835547.2019.12092157[Taylor & Francis Online], [Google Scholar]). Moreover, the model implies that the subsidy hurts borrowers it was intended to help, as well as raises the aggregate mortgage default rate. My article highlights the adverse impact of the subsidy on welfare and financial stability, and sheds light on the root cause of the global financial crisis. It also provides potentially useful reference to other countries that have (or are considering adopting) a mortgage subsidy mechanism similar to that in the US.
期刊介绍：
The Journal of Real Estate Literature (JREL) is a publication of the American Real Estate Society (ARES). This journal offers a comprehensive source of information about real estate research and encourages research and education in industry and academia. The scope of the journal goes beyond that of traditional literature journals that only list published research. This journal also includes working papers, dissertations, book reviews and articles on literature reviews on specialized topics, real estate information technology and international real estate.
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