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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Liquidity Crises in the Mortgage Market
You Suk Kim
Steven Laufer
Karen M. Pence
Richard Stanton
Nancy Wallace
Abstract

Non-banks originated about half of all mortgages in 2016, and 75% of mortgages insured by the FHA or VA. Both shares are much higher than those observed at any point in the 2000s. We describe in this paper how non-bank mortgage companies are vulnerable to liquidity pressures in both their loan origination and servicing activities, and we document that this sector in aggregate appears to have minimal resources to bring to bear in a stress scenario. We show how the same liquidity issues unfolded during the financial crisis, leading to the failure of many non-bank companies, requests for government assistance, and harm to consumers. The high share of non-bank lenders in FHA and VA lending suggests that the government has significant exposure to the vulnerabilities of non-bank lenders, but this issue has received very little attention in the housing-reform debate.


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You Suk Kim & Steven Laufer & Karen M. Pence & Richard Stanton & Nancy Wallace, Liquidity Crises in the Mortgage Market, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2018-016, 08 Mar 2018, revised 01 Jun 2018.
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JEL Classification:
Subject headings:
Keywords: FHA; Ginnie Mae; Mortgages and credit; Financial crisis; Mortgage servicing; Nonbank institutions
DOI: 10.17016/FEDS.2018.016r1
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