Clogged Intermediation: Were Home Buyers Crowded Out?

59 Pages Posted: 7 Nov 2017 Last revised: 23 Jun 2019

See all articles by Dong Beom Choi

Dong Beom Choi

Seoul National University - Business School

Hyun-Soo Choi

KAIST College of Business

Jung-Eun Kim

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: June 5, 2019

Abstract

Post-crisis policy interventions significantly increased the demand for mortgage refinancing, but there is an unexplored possibility that the surge in refinancing applications has crowded out the supply of credit to home buyers. In this paper, we examine two frictions that hamper financial intermediation and cause banks to substitute home purchase loans for refinance loans. If banks are constrained by risk capacity, they may prefer safer loans. If banks are constrained by operating capacity, they may prefer applications that require less processing time. We find that following the recent financial crisis, banks constrained by these capacity limits rationed credit to home buyers while supplying greater refinance credit.

Keywords: Credit rationing, mortgage lending, operating capacity, monetary transmission, distributional effects

JEL Classification: E52, G21, R38

Suggested Citation

Choi, Dong Beom and Choi, Hyun-Soo and Kim, Jung-Eun, Clogged Intermediation: Were Home Buyers Crowded Out? (June 5, 2019). Available at SSRN: https://ssrn.com/abstract=3065618 or http://dx.doi.org/10.2139/ssrn.3065618

Dong Beom Choi (Contact Author)

Seoul National University - Business School ( email )

Seoul
Korea, Republic of (South Korea)

Hyun-Soo Choi

KAIST College of Business ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul
Korea, Republic of (South Korea)
8229583592 (Phone)

Jung-Eun Kim

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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