Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market

61 Pages Posted: 15 Mar 2007  

Kristopher Gerardi

Federal Reserve Bank of Atlanta

Harvey S. Rosen

Princeton University - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Paul Willen

Federal Reserve Bank of Boston - Research Department; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2007

Abstract

The U.S. mortgage market has experienced phenomenal change over the last 35 years. This paper develops and implements a technique for assessing the impact of changes in the mortgage market on households. Our framework, which is based on the permanent income hypothesis, that allows us to gauge the importance of borrowing constraints by estimating the empirical relationship between the value of a household's home purchase and its future income. We find that over the past several decades, housing markets have become less imperfect in the sense that households are now more able to buy homes whose values are consistent with their long-term income prospects. One issue that has received particular attention is the role that the housing Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, have played in improving the market for housing finance. We find no evidence that the GSEs' activities have contributed to this phenomenon. This is true whether we look at all homebuyers, or at subsamples of the population whom we might expect to benefit particularly from GSE activity, such as low-income households and first-time homebuyers.

Suggested Citation

Gerardi, Kristopher and Rosen, Harvey S. and Willen, Paul, Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market (March 2007). NBER Working Paper No. w12967. Available at SSRN: https://ssrn.com/abstract=971601

Kristopher S. Gerardi (Contact Author)

Federal Reserve Bank of Atlanta ( email )

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HOME PAGE: http://sites.google.com/site/kristophergerardishomepage/

Harvey S. Rosen

National Bureau of Economic Research (NBER)

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CESifo (Center for Economic Studies and Ifo Institute)

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Princeton University - Department of Economics ( email )

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Paul S. Willen

Federal Reserve Bank of Boston - Research Department ( email )

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Boston, MA 02210
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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