28 Pages Posted: 23 Feb 2017 Last revised: 5 Apr 2017
Date Written: April 2017
The 2014 U.S. liquidity coverage ratio (LCR) gave preferential liquidity weights to mortgage-backed securities (MBS) backed by GNMA versus those backed by the Government Sponsored Entreprises (GSEs). We show that this policy created a liquidity premium for GNMA-backed MBS relative to GSE-backed MBS. Then, exploiting cross-sectional differences in funding sources across lenders, we show that LCR policy has led to a higher market share for nonbanks and lenders reliant on securitization. It also led to increased supply of credit for risky borrowers and to tighter standards among loans eligible for purchase by the GSEs.
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, Non-Banks and Lending Standards in Mortgage Markets. The Spillovers from Liquidity Regulation (April 2017). Available at SSRN: https://ssrn.com/abstract=2921691