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Do the GSEs Matter to Low-Income Housing Markets? An Assessment of the Effects of the GSE Loan Purchase Goals on California Housing Outcomes (Revised)

Raphael W. Bostic and Stuart A. Gabriel
This study evaluates the effects of GSE mortgage purchase activity on homeownership and housing conditions among communities that are the focus of the 1992 GSE Act and the HUD affordable housing goals. To identify GSE effects, the test framework exploits differences in the definition of lower-income neighborhoods under the 1992 GSE Act, which establishes regulation for the GSEs, and the 1977 Community Reinvestment Act, which lays out regulation for Federally-insured depository institutions. Research findings indicate limited direct effects of GSE loan purchase activity on local housing markets. However, results do evidence a threshold level of GSE activity below which significantly adverse local housing market outcomes are recorded. These findings suggest the importance of GSE home loan purchases among low-income neighborhoods in efforts to achieve the GSE and HUD affordable housing goals.