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Clogged Intermediation: Were Home Buyers Crowded Out?

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  • DONG BEOM CHOI
  • HYUN‐SOO CHOI
  • JUNG‐EUN KIM
Abstract
Postcrisis policy interventions significantly increased the demand for mortgage refinancing, but there is an unexplored possibility that the surge in refinancing applications crowded out the supply of credit to home buyers. We examine two frictions that hamper financial intermediation and cause banks to substitute away from home purchase loans and toward refinance loans. Banks with limited risk capacity may prefer safer loans, and banks with limited operating capacity may prefer applications that require less processing time. We find that, following the 2008 financial crisis, banks constrained by these capacity limits rationed credit to home buyers while supplying more refinancing credit.

Suggested Citation

  • Dong Beom Choi & Hyun‐Soo Choi & Jung‐Eun Kim, 2022. "Clogged Intermediation: Were Home Buyers Crowded Out?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(4), pages 1065-1098, June.
  • Handle: RePEc:wly:jmoncb:v:54:y:2022:i:4:p:1065-1098
    DOI: 10.1111/jmcb.12876
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    Cited by:

    1. Mikel Bedayo & Gabriel Jiménez & José-Luis Peydró & Raquel Vegas, 2020. "Screening and Loan Origination Time: Lending Standards, Loan Defaults and Bank Failures," Working Papers 1215, Barcelona School of Economics.

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