Housing Finance GSEs: Who Gets the Subsidy?

Taxpayer subsidies that flow toward housing-finance government-sponsored enterprises (GSE) are implicit in nature. This makes the size and distribution of subsidy values hard to measure directly. An array of indirect analyses indicates that incentive-conflicted GSE managers can and do extract substantial annual subsidies for GSE stockholders. Currently, stockholders are allowed to encourage managers to exploit taxpayers by tying incentive compensation implicitly to increases in the discounted present value of expected future subsidies. To counteract the inappropriate incentive, managers should be made accountable to taxpayers for returning all compensation that can be fairly attributed to increases in subsidies captured by GSE stockholders.