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Working Paper
HOUSING SPECULATION, GSES, AND CREDIT MARKET SPILLOVERS
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 ...