Nonbanks and Lending Standards in Mortgage Markets. The Spillovers from Liquidity Regulation

48 Pages Posted: 23 Feb 2017 Last revised: 19 Jul 2017

Pedro Gete

Georgetown University; IE Business School

Michael Reher

Harvard University

Date Written: July 1, 2017

Abstract

We show that the 2014 U.S. liquidity coverage ratio (LCR), which gave the maximum liquidity weights to mortgage-backed securities backed by Ginnie Mae (GNMA), has led to a higher FHA market share for nonbanks. The mechanism is a general equilibrium effect: the LCR policy created a premium for GNMA-backed MBS relative to GSE-backed MBS. This premium attracted nonbanks and originate-to-sell lenders towards GNMA MBS. It also led to increased supply of credit for risky borrowers. LCR explains 26% of nonbanks rise from 2013-2015.

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, Nonbanks and Lending Standards in Mortgage Markets. The Spillovers from Liquidity Regulation (July 1, 2017). Available at SSRN: https://ssrn.com/abstract=2921691

Pedro Gete (Contact Author)

Georgetown University ( email )

ICC 580
37th and O Sts., NW
Washington, DC 20057
United States

HOME PAGE: http://www9.georgetown.edu/faculty/pg252/

IE Business School

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

Michael Reher

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Paper statistics

Downloads
130
Rank
183,423
Abstract Views
798