Working Paper

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


Abstract: The distribution of combined loan-to-value ratios (CLTVs) for purchase mortgages has been remarkably stable in the U.S. over the last 25 years. But the source of high-CLTV loans changed during the housing boom of the 2000s, with private securitization replacing FHA and VA loans directly guaranteed by the government. This substitution holds within ZIP codes, properties, and borrower types. Furthermore, the two groups exhibit similar delinquency rates. These findings suggest credit expanded predominantly through the increase in asset values rather than a relaxation of CLTV constraints, which supports models of the collateral channel or broad changes in house price expectations.

Keywords: Household Finance; Mortgages; Loan-to-Value Ratios; Government Guarantees; Collateral Rates;

JEL Classification: D30; E3; G21; G28; R30;

https://doi.org/10.21799/frbp.wp.2020.40

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Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2020-10-07

Number: 20-40