The Role of Government and Private Institutions in Credit Cycles in the U.S. Mortgage Market

Manuel Adelino, William B. McCartney and Antoinette Schoar

No 27499, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We show that the distribution of combined loan-to-value ratios (CLTVs) for purchase mortgages in the U.S. has been remarkably stable over the last 25 years. But there was a dramatic shift during the housing boom of the 2000s in the provision of high- CLTV loans through private sources, which replaced almost one-for-one the share of high-CLTV loans directly guaranteed by the government, via FHA and VA. Post 2008, FHA/VA loans increased back to 30% of all purchase mortgages. This substitution between government and privately backed high-CLTV loans holds within ZIP codes, properties and borrower types over the full sample period. We also show that the increase in private high-CLTV lending follows local house price increases rather than preceding them. These findings suggest that the housing boom was not accompanied by a shift towards more high-CLTV loans, and instead favor models that rely on changes in collateral values or broad changes in house price expectations.

JEL-codes: E03 G21 G28 G30 R30 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-fmk, nep-mac and nep-ure
Note: AP CF
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Citations: View citations in EconPapers (2)

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