48 Pages Posted: 23 Feb 2017 Last revised: 19 Jul 2017
Date Written: July 1, 2017
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: 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