The Role of Government and Private Institutions in Credit Cycles in the U.S. Mortgage Market

57 Pages Posted: 16 Jun 2020 Last revised: 29 Jul 2020

See all articles by Manuel Adelino

Manuel Adelino

Duke University; Duke Innovation & Entrepreneurship Initiative; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

W. Ben McCartney

Purdue University - Krannert School of Management; Duke University - Finance

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Date Written: July 28, 2020

Abstract

The distribution of combined loan-to-value ratios (CLTVs) for purchase mortgages has been remarkably stable in the U.S. over the last 25 years. But the source of high-CLTV loans changed during the housing boom of the 2000s, with private securitization replacing FHA and VA loans directly guaranteed by the government. This substitution holds within ZIP codes, properties and borrower types. Furthermore, the two groups exhibit similar delinquency rates. These findings suggest credit expanded predominantly through the increase in asset values rather than a relaxation of CLTV constraints, which supports models of the collateral channel or broad changes in house price expectations.

Keywords: Household Finance, Mortgages, Loan-to-Value Ratios, Government Guarantee, Collateral Rates

JEL Classification: D30, E3, G21, G28, R30

Suggested Citation

Adelino, Manuel and McCartney, W. Ben and Schoar, Antoinette, The Role of Government and Private Institutions in Credit Cycles in the U.S. Mortgage Market (July 28, 2020). Available at SSRN: https://ssrn.com/abstract=3608150 or http://dx.doi.org/10.2139/ssrn.3608150

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National Bureau of Economic Research (NBER) ( email )

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W. Ben McCartney

Purdue University - Krannert School of Management ( email )

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Duke University - Finance ( email )

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Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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United States
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617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

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