Mortgage Securitization and Shadow Bank Lending

52 Pages Posted: 23 Feb 2017 Last revised: 3 Jul 2019

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: July 2019

Abstract

We document a new channel through which securitization affects financial stability: higher prices in the secondary market increase the supply of credit in the primary market by lenders with little funding liquidity, especially nonbanks. We estimate the effect by exploiting a regulatory shock to the cross-section of mortgage-backed security prices, the introduction of the U.S. Liquidity Coverage Ratio. The shock increases secondary market prices for particular loan types (i.e. FHA loans) by granting them favorable regulatory status as a securitized product. Nonbanks respond by loosening standards for such loans, which raises their market share and also increases 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 (July 2019). 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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