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
Date Written: July 28, 2020
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: Suggested Citation