When home prices threaten to decline, large mortgage investors can benefit from
fostering new lending that boosts demand. We ask whether this benefit contributed to
the growth in acquisitions of risky mortgages by the Government Sponsored Enterprises
(GSEs) in the first half of 2007. We find that it helps explain the variation of this
growth across regions. The growth predicted by this benefit is on top of the acquisition
growth caused by the exit of private-label securitizers. We conclude that the GSEs
actively targeted their acquisitions to counter home-price declines.