Liquidity Crises in the Mortgage Market

Nonbanks originated about half of all mortgages in 2016, and 75 percent of the mortgages insured by the FHA and the VA. Both shares are much higher than those observed at any point in the 2000s. In this paper, we describe how nonbank mortgage companies are vulnerable to liquidity pressures in both t...

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Bibliographic Details
Published in:Brookings papers on economic activity 2018-04, Vol.2018 (1), p.347-413
Main Authors: KIM, YOU SUK, LAUFER, STEVEN M., PENCE, KAREN, STANTON, RICHARD, WALLACE, NANCY
Format: Article
Language:English
Subjects:
Business models
Central banks
Companies
Consumers
Economic crisis
Government sponsored enterprises
Guarantees
Housing
Housing policy
Interest rates
Lines of credit
Liquidity
Loans
Mortgage banks
Mortgage companies
Mortgage servicing
Mortgages
Reforms
Researchers
Short term
Solvency
Welfare benefits
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Summary:Nonbanks originated about half of all mortgages in 2016, and 75 percent of the mortgages insured by the FHA and the VA. Both shares are much higher than those observed at any point in the 2000s. In this paper, we describe how nonbank mortgage companies are vulnerable to liquidity pressures in both their loan origination and servicing activities, and we document that this sector in the aggregate appears to have minimal resources to bring to bear in an adverse scenario. We show how the same liquidity issues unfolded during the financial crisis, leading to the failure of many nonbank companies, requests for government assistance, and harm to consumers. The high share of nonbank lenders in FHA and VA lending suggests that the government has significant exposure to the vulnerabilities of nonbank lenders, but this issue has received very little attention in the housing reform debate.
ISSN:0007-2303
1533-4465
1533-4465
0007-2303
DOI:10.1353/eca.2018.0004