An Altered U.S. Housing Finance System: Implications for Housing
AbstractDuring the 1960s and 1970s, the U.S. government closely regulated the single-family housing finance system. The regulation manifested itself in a highly specialized system with four notable characteristics: portfolio restrictions against investments in corporate assets, tax inducements to invest in residential mortgages, prohibitions against investing in ARMS, and deposit rates ceilings. All were removed in the 1980s, and, not surprisingly, the housing finance system changed markedly. Between early 1982 and 1989, two-fifths of all new loans had adjustable, not fixed, rates, and savings and loans reduced their holdings of FRMs (both whole loans and mortgage pass-throughs) by 15 to 20 percent. Moreover, the fraction of conventional FRM originations that have been pooled into pass-throughs rose from less than one-twentieth before 1981 to over one-half after 1985. With the opportunity of borrowers to shift to lower coupon ARMs when rates rise and with the integration of the home mortgage market with capital markets generally, one would expect that the U.S. housing sector is now less sensitive to rising interest rates than it was in the 1960s and 1970s. Numerous studies support this expectation.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3770.
Date of creation: Jul 1991
Date of revision:
Publication status: published as Patric H. Hendershott. "Housing Finance in the United States," in Yukio Noguchi and James Poterba, "Housing Markets in the U.S. and Japan" University of Chicago Press (1994)
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