Nonbank Issuers and Mortgage Credit Supply

Abstract

We show that a shift from bank to nonbank issuers of mortgage-backed securities (MBS) led to easier credit standards and higher interest rates for Federal Housing Administration (FHA) mortgages and increased lending to riskier borrowers. We estimate these causal, equilibrium effects using a difference-in-differences design that exploits plausibly exogenous geographic variation in the exit of JPMorgan Chase from FHA lending.  Our findings highlight that MBS issuers and the industrial organization of securitization markets are crucial for credit supply, and are among the first direct pieces of causal evidence on how bank-nonbank shifts affect equilibrium credit supply in consumer credit markets.

Keywords: Nonbank Financial Intermediation, Mortgages, Loan Securitization, Industrial Organization, FHA, MBS Issuers, Credit Supply

JEL Classification: G21, G22, L1