Download This PaperMortgage Securitization and Shadow Bank Lending
The Review of Financial Studies, 2021, vol. 34, no 5, p. 2236-2274.
85 Pages Posted: 23 Feb 2017 Last revised: 13 Dec 2021
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
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