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Liquidity Crises in the Mortgage Market

Author

Listed:
  • Kim, You Suk
  • Laufer, Steven
  • Pence, Karen M.
  • Stanton, Richard
  • Wallace, Nancy

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.

Suggested Citation

  • Kim, You Suk & Laufer, Steven & Pence, Karen M. & Stanton, Richard & Wallace, Nancy, 2018. "Liquidity Crises in the Mortgage Market," Finance and Economics Discussion Series 2018-016, Board of Governors of the Federal Reserve System (US), revised 01 Jun 2018.
  • Handle: RePEc:fip:fedgfe:2018-16
    DOI: 10.17016/FEDS.2018.016r1
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    References listed on IDEAS

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    More about this item

    Keywords

    FHA; Ginnie Mae; Mortgages and credit; Financial crisis; Mortgage servicing; Nonbank institutions;

    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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