ABC News quotes PIMCO’s Bill Gross.

“Without government guarantees, mortgage rates would be hundreds — hundreds of basis points higher, resulting in a moribund housing market for years.”

Is he just talking his book, or is he serious?

The standard estimate in the literature is that Fannie and Freddie reduce mortgage rates by 25 basis points or less.

What Gross is saying might be true if you are an unqualified borrower buying a house with little or no money down. But once upon a time we had a mortgage market in which borrowers with documented income and assets took out loans for 90 percent or less of the price of the house they were buying. If we went back to those types of mortgages, a typical borrower would not save hundreds of basis points by having Uncle Sam as a co-signer. If the guarantee is worth that much, then there is something fishy about the loans that are being guaranteed.