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The Impact of the 2007 Liquidity Shock on Bank Jumbo Mortgage Lending

Author

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  • PAUL CALEM
  • FRANCISCO COVAS
  • JASON WU

Abstract

This paper explores the consequences of the collapse of the private‐label residential mortgage‐backed securities market in 2007 on banks’ originations of jumbo mortgages. We show that jumbo lending declined by more at banks that were more dependent on this market and were less well capitalized. In contrast, banks that had little dependence on this market and were well capitalized increased jumbo originations. These findings highlight how dependence on the secondary market may cause amplification of financial shocks, and the potential value of capital requirements that are higher during periods of economic growth in mitigating the amplification effects.

Suggested Citation

  • Paul Calem & Francisco Covas & Jason Wu, 2013. "The Impact of the 2007 Liquidity Shock on Bank Jumbo Mortgage Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(s1), pages 59-91, August.
    • Handle: RePEc:wly:jmoncb:v:45:y:2013:i:s1:p:59-91
    DOI: 10.1111/jmcb.12037
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    References listed on IDEAS

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    Cited by:

    1. Salomón García, 2022. "Mortgage securitization and information frictions in general equilibrium," Working Papers 2221, Banco de España.
    2. Eric Higgins & Abdullah Yavas & Shuang Zhu, 2022. "Private mortgage securitization and loss given default," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(5), pages 1334-1359, September.
    3. James N. Conklin & Haoyang Liu & Calvin Zhang, 2024. "Credit supply shocks, home purchase volume, and borrowing behavior," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 52(2), pages 486-513, March.
    4. Calem, Paul & Correa, Ricardo & Lee, Seung Jung, 2020. "Prudential policies and their impact on credit in the United States," Journal of Financial Intermediation, Elsevier, vol. 42(C).
    5. Ekkayokkaya, Manapol & Ploenchitt, Pisploen & Wolff, Christian C.P., 2025. "Diversification strategies and investment opportunities in the international banking industry," Journal of International Money and Finance, Elsevier, vol. 159(C).
    6. Garcia-Villegas, Salomon, 2023. "The amplification effects of adverse selection in mortgage credit supply," Journal of Housing Economics, Elsevier, vol. 62(C).

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