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Mortgage Securitization and Shadow Bank Lending

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Mortgage Securitization and Shadow Bank Lending.pdf (390.78 KB)
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2021-05
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Oxford University Press
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https://hdl.handle.net/20.500.14417/3308
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https://doi.org/10.1093/rfs/hhaa088
Abstract
We show how securitization affects the size of the nonbank lending sector through a novel price-based channel. We identify the channel using a regulatory spillover shock to the cross-section of mortgage-backed security prices: the U.S. liquidity coverage ratio. The shock increases secondary market prices for FHA-insured loans by granting them favorable regulatory status once securitized. Higher prices lower nonbanks’ funding costs, prompting them to loosen lending standards and originate more FHA-insured loans. This channel accounts for 22% of nonbanks’ growth in overall mortgage market share over 2013–2015. While the shock creates risks for financial stability, homeownership also increases.
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Attribution-NonCommercial-NoDerivatives 4.0 International
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IE Business School
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Gete, P., & Reher, M. (2021). Mortgage securitization and shadow bank lending. The Review of Financial Studies, 34(5), 2236-2274. https://doi.org/10.1093/rfs/hhaa088.
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