HOUSING SPECULATION, GSES, AND CREDIT MARKET SPILLOVERS

Amornsiripanitch, Natee; Strahan, Philip E.; Zhang, Song; Zheng, Xiang

doi:10.21799/frbp.wp.2024.02

Working Paper

HOUSING SPECULATION, GSES, AND CREDIT MARKET SPILLOVERS

Abstract: In 2021, the U.S. Treasury reduced the exposure of government-sponsored enterprises (GSEs) to speculative mortgages. As a result, GSE purchases of these loans fell by about 20 percentage points. The consequent decline in credit to speculators, however, was mitigated both by entry of corporate investors and because banks began holding more of these loans. By increasing bank exposure to local risk, this move reduced banks’ willingness to supply both jumbo mortgages and small business loans. Our empirical design fully accounts for risks at the balance sheet level. Banks thus manage credit not only in a macro sense — the focus of most research — but also market by market.

Keywords: Housing; Speculation; GSE; Banking;

JEL Classification: G21; R31;

https://doi.org/10.21799/frbp.wp.2024.02