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

  • Kristopher Gerardi
  • Harvey S. Rosen
  • Paul Willen

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12967.

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Date of creation: Mar 2007
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Publication status: published as Kristopher Gerardi & Harvey S. Rosen & Paul S. Willen, 2007. "A summary of: "Do households benefit from financial deregulation and innovation? the case of mortgage market"," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 302-303.
Handle: RePEc:nbr:nberwo:12967
Note: PE
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