Liquidity Crises in the Mortgage Market

74 Pages Posted: 12 Mar 2018 Last revised: 21 Feb 2019

See all articles by You Kim

You Kim

Temple University - Department of Human Resource Management

Steven Laufer

Board of Governors of the Federal Reserve System

Karen M. Pence

Board of Governors of the Federal Reserve System

Richard Stanton

University of California, Berkeley - Haas School of Business

Nancy Wallace

University of California, Berkeley - Haas School of Business

Date Written: 2018-03-08

Abstract

Non-banks originated about half of all mortgages in 2016, and 75% of mortgages insured by the FHA or VA. Both shares are much higher than those observed at any point in the 2000s. We describe in this paper how non-bank mortgage companies are vulnerable to liquidity pressures in both their loan origination and servicing activities, and we document that this sector in aggregate appears to have minimal resources to bring to bear in a stress scenario. We show how the same liquidity issues unfolded during the financial crisis, leading to the failure of many non-bank companies, requests for government assistance, and harm to consumers. The high share of non-bank lenders in FHA and VA lending suggests that the government has significant exposure to the vulnerabilities of non-bank lenders, but this issue has received very little attention in the housing-reform debate.

Keywords: FHA, Ginnie Mae, Mortgages and credit, Financial crisis, Mortgage servicing, Nonbank institutions

JEL Classification: D12, D18, E58, G21, G23, G28

Suggested Citation

Kim, You and Laufer, Steven and Pence, Karen M. and Stanton, Richard and Wallace, Nancy, Liquidity Crises in the Mortgage Market (2018-03-08). FEDS Working Paper No. 2018-016. Available at SSRN: https://ssrn.com/abstract=3137994 or http://dx.doi.org/10.17016/FEDS.2018.016r1

You Kim (Contact Author)

Temple University - Department of Human Resource Management ( email )

Philadelphia, PA 19122
United States

Steven Laufer

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-475-6608 (Phone)
202-728-5889 (Fax)

Karen M. Pence

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Richard Stanton

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Nancy Wallace

University of California, Berkeley - Haas School of Business

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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