Mortgage Securitization and Shadow Bank Lending

The Review of Financial Studies, forthcoming

85 Pages Posted: 23 Feb 2017 Last revised: 8 Jun 2020

See all articles by Pedro Gete

Pedro Gete

IE Business School; IE University

Michael Reher

University of California, San Diego (UCSD) - Rady School of Management

Date Written: June 2020

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 of such loans. This channel accounts for 22% of nonbanks' growth in overall mortgage market share over 2013-15. While the shock creates financial stability risks, it also raises homeownership.

Keywords: Lending Standards, LCR, Liquidity, Mortgages, Nonbanks, FHA, GSEs, MBS

JEL Classification: G12, G18, G21, G23, E32, E44

Suggested Citation

Gete, Pedro and Reher, Michael, Mortgage Securitization and Shadow Bank Lending (June 2020). The Review of Financial Studies, forthcoming, Available at SSRN: https://ssrn.com/abstract=2921691 or http://dx.doi.org/10.2139/ssrn.2921691

Pedro Gete (Contact Author)

IE Business School

Calle Maria de Molina 12, Bajo
Madrid, Madrid 28006
Spain

IE University ( email )

Calle Pedro de Valdivia 21
Madrid, Madrid 28006
Spain

Michael Reher

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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