Mortgages and Credit: Policies and Regulations I
Paper Session
Sunday, Jan. 3, 2027 8:00 AM - 10:00 AM (EST)
- Chair: Lara Lowenstein, Federal Reserve Bank of Cleveland
Credit Expansion and Neighborhood Transformation: Evidence from Place-Based Mortgage Lending
Abstract
When mortgage credit expands, who captures the gains? In supply-constrained markets, credit subsidies shift housing demand and are capitalized into house prices, enriching incumbent owners while leaving new buyers no better off. We document a fundamentally different mechanism when supply is elastic. Exploiting the Duty to Serve program, which expanded GSE mortgage purchases in underserved rural areas, we find that credit expansion increased homeownership and transaction volumes while property-level prices remained stable. This quantity response enabled neighborhood transformation through household sorting: low-skilled residents moved in while high-skilled residents remained. A spatial equilibrium model reveals that the policy reduces the effective cost of homeownership by 3.3%. Elastic rural housing supply and low tenure switching costs pass these gains through to household welfare rather than prices. However, the effects are uneven: low-skilled owners benefit most, while high-skilled renters incur modest losses.Mortgage Aggregation and Credit Supply
Abstract
One third of U.S. mortgages are originated by small correspondent lenders and then aggregated and securitized by large aggregators. Despite the considerable size and importance of aggregators in channelling funding to the housing market, our understanding of this market remains limited. I construct a novel dataset on correspondent lender-aggregator relationships to study the causal effect of mortgage aggregation on credit supply. Exploiting the U.S. implementation of Basel III as a negative shock to aggregation, I find a significant impact on credit supply, especially to low-income borrowers. Matching frictions in the aggregation market contribute to the overall credit supply decline, while aggregators’ optimal portfolio reallocation and correspondent lenders’ specialization across demographic groups drive the unequal impact on lowincome borrowers. My results highlight the important role of mortgage aggregation in reducing securitization frictions and expanding credit access.Liquidity Relief and Foreclosure: Evidence from Mortgage Modifications
Abstract
Mortgage modification is widely used to address mortgage delinquency and often provides relief by easing borrowers’ cash-flow obligations. Existing evidence on its effectiveness is drawn largely from crisis-era settings with widespread negative equity, providing limited insight into how modification affects foreclosure outcomes for borrowers with positive equity. Using loan-level data on mortgages purchased or guaranteed by the Government Sponsored Enterprises between 1999 and 2024, we study how the effect of mortgage modification on foreclosure differs for borrowers who are underwater versus those with positive equity at the time of distress. We find pronounced heterogeneity: among borrowers experiencing payment distress, modification substantially reduces foreclosure for underwater borrowers but has much smaller effects for those with positive equity. These patterns are robust across specifications, sample periods, and approaches addressing potential selection into modification. While recent research shows that entry into mortgage distress is primarily driven by cash-flow strain and assigns a more limited role to negative equity, we find that the effectiveness of liquidity relief in reducing foreclosure depends critically on borrower equity at delinquency. Negative equity may play a limited role in the onset of default but is central in determining the effectiveness of mortgage modifications in avoiding foreclosure.Discussant(s)
Mallick Hossain
,
Federal Reserve Bank of Philadelphia
Gazi Kabas
,
Tilburg University
David Benson
,
Federal Reserve Board
Greg Howard
,
University of Illinois-Urbana-Champaign
JEL Classifications
- R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location
- G2 - Financial Institutions and Services