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Liquidity Crises in the Mortgage Market

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Abstract

Non-banks originated about half of all mortgages in 2016, and 75% of mortgages insured by the FHA or VA. Both shares are much higher than those observed at any point in the 2000s. We describe in this paper how non-bank mortgage companies are vulnerable to liquidity pressures in both their loan origination and servicing activities, and we document that this sector in aggregate appears to have minimal resources to bring to bear in a stress scenario. We show how the same liquidity issues unfolded during the financial crisis, leading to the failure of many non-bank companies, requests for government assistance, and harm to consumers. The high share of non-bank lenders in FHA and VA lending suggests that the government has significant exposure to the vulnerabilities of non-bank lenders, but this issue has received very little attention in the housing-reform debate.

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  • You Suk Kim & Steven Laufer & Karen M. Pence & Richard Stanton & Nancy Wallace, 2018. "Liquidity Crises in the Mortgage Market," Finance and Economics Discussion Series 2018-016, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2018-16
    DOI: 10.17016/FEDS.2018.016r1
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    Cited by:

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    2. Bartlett, Robert & Morse, Adair & Stanton, Richard & Wallace, Nancy, 2022. "Consumer-lending discrimination in the FinTech Era," Journal of Financial Economics, Elsevier, vol. 143(1), pages 30-56.
    3. Irani, Rustom & Iyer, Rajkamal & Meisenzahl, Ralf & Peydró, José-Luis, 2021. "The rise of shadow banking: Evidence from capital regulation," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 34(5), pages 2181-2235.
    4. Andreas Fuster & David Lucca & James Vickery, 2023. "Mortgage-backed securities," Chapters, in: Refet S. Gürkaynak & Jonathan H. Wright (ed.), Research Handbook of Financial Markets, chapter 15, pages 331-357, Edward Elgar Publishing.
    5. Aiello, Darren J., 2022. "Financially constrained mortgage servicers," Journal of Financial Economics, Elsevier, vol. 144(2), pages 590-610.
    6. Lewis, Brittany Almquist, 2023. "Creditor rights, collateral reuse, and credit supply," Journal of Financial Economics, Elsevier, vol. 149(3), pages 451-472.
    7. Mayock, Tom & Shi, Lan, 2022. "Adverse selection in the market for mortgage servicing rights," Journal of Housing Economics, Elsevier, vol. 58(PB).
    8. You Suk Kim & Donghoon Lee & Tess C. Scharlemann & James Vickery, 2022. "Intermediation Frictions in Debt Relief: Evidence from CARES Act Forbearance," Finance and Economics Discussion Series 2022-017, Board of Governors of the Federal Reserve System (U.S.).
    9. Manuel Adelino & William B. McCartney & Antoinette Schoar, 2020. "The Role of Government and Private Institutions in Credit Cycles in the U.S. Mortgage Market," NBER Working Papers 27499, National Bureau of Economic Research, Inc.
    10. Andreas Fuster & Matthew Plosser & James Vickery, 2018. "Does CFPB Oversight Crimp Credit?," Staff Reports 857, Federal Reserve Bank of New York.
    11. Manuel Adelino & W. Ben McCartney & Antoinette Schoar, 2020. "The Role of Government and Private Institutions in Credit Cycles in the U.S. Mortgage Market," Working Papers 20-40, Federal Reserve Bank of Philadelphia.
    12. Nina Boyarchenko & Giovanni Favara & Moritz Schularick, 2022. "Financial Stability Considerations for Monetary Policy: Empirical Evidence and Challenges," Staff Reports 1003, Federal Reserve Bank of New York.
    13. Núñez-Torres, Alexander, 2022. "Deposit market power, funding stability, and mortgage securitization✰," Finance Research Letters, Elsevier, vol. 47(PA).
    14. Egle Jakucionyte & Swapnil Singh, 2019. "Mortgage Foreclosure Risk After the Great Recession," Bank of Lithuania Working Paper Series 69, Bank of Lithuania.
    15. Reher, Michael, 2021. "Finance and the supply of housing quality," Journal of Financial Economics, Elsevier, vol. 142(1), pages 357-376.

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    More about this item

    Keywords

    FHA; Ginnie Mae; Mortgages and credit; Financial crisis; Mortgage servicing; Nonbank institutions;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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