Mortgage Leverage and House Prices

62 Pages Posted: 9 Mar 2020 Last revised: 27 Aug 2020

See all articles by Stephanie Johnson

Stephanie Johnson

Rice University, Jones School of Business

Date Written: August 26, 2020


I measure the effect of mortgage debt-to-income restrictions on house prices using a change in the eligibility requirements imposed by Fannie Mae and Freddie Mac. I show that in 1999 Fannie Mae and Freddie Mac’s debt-to-income rules diverged, leading to tighter lending standards in places where local lenders had pre-existing relationships with Freddie Mac. Locations with tighter debt-to-income requirements experience an immediate relative reduction in house prices, showing that changes in lending standards have powerful effects. The effect builds over time and leads to a smaller house price boom and bust in these locations during the 2000s.

Keywords: mortgages, financial regulation, house prices

JEL Classification: G21, G28, R31

Suggested Citation

Johnson, Stephanie, Mortgage Leverage and House Prices (August 26, 2020). Available at SSRN: or

Stephanie Johnson (Contact Author)

Rice University, Jones School of Business ( email )

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