The marginal effect of government mortgage guarantees on homeownership

The U.S. government guarantees a majority of residential mortgages to promote homeownership. This paper uses property-level data to estimate the effect of government guarantees on homeownership and other housing market outcomes, by exploiting variation of the conforming loan limits (CLLs) along county borders. We find that CLL changes had effects on government guarantees, house prices, house sales and construction activity, but find no robust effect on homeownership. The confidence intervals of our estimates suggest that one additional homeowner corresponds to an increase of government guarantees by at least $6 million. Therefore government guarantees could be considerably reduced with modest effects on homeownership. Our findings are relevant for housing finance reform plans that propose to lower the CLLs. Published by Elsevier B.V.