Housing finance and the transmission of monetary policy

The mortgage financing system in the US has undergone tremendous change since the 1970s. Mortgage rationing has ended due to the elimination of ceilings on interest rates payable on time deposits and to state-imposed usury ceilings on interest rates chargeable on mortgages. A surge of financial inno...

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Bibliographic Details
Published in:Federal Reserve Bank of New York Quarterly Review 1990-07, Vol.15 (2), p.42-55
Main Author: Ryding, John
Format: Article
Language:English
Subjects:
Adjustable rate mortgages
Banking industry
Dwellings
Finance
Housing
Housing finance
Interest rates
Laws, regulations and rules
Monetary policy
Mortgage backed securities
Mortgage banks
Mortgages
Prices and rates
Savings and loan associations
Secondary mortgage market
Statistical data
Treasury securities
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Summary:The mortgage financing system in the US has undergone tremendous change since the 1970s. Mortgage rationing has ended due to the elimination of ceilings on interest rates payable on time deposits and to state-imposed usury ceilings on interest rates chargeable on mortgages. A surge of financial innovation has accompanied this process of deregulation. As a result, housing demand now should be considerably less responsive to monetary tightening than in the past. With the widespread issuance of the adjustable rate mortgage as an alternative to the fixed rate mortgage in the 1980s, thrifts and other mortgage lenders can better manage exposure to varying interest rates. During the 1980s, the mortgage-backed securities market grew to become one of the largest fixed-income markets in the US, increasing the integration of the mortgage market with capital markets. By transforming the mortgage finance system, deregulation and financial innovation have altered the way that monetary policy influences the cost and availability of mortgages and residential investment.
ISSN:0147-6580