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How Mortgage Finance Reform Could Affect Housing

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  • John V. Duca
  • John Muellbauer
  • Anthony Murphy

Abstract

Although major changes in mortgage finance have occurred since the subprime bust, several issues remain unresolved, centering on the roles of Fannie Mae, Freddie Mac, and the FHA. We analyze how some reforms might affect house prices in a framework rich enough to simulate the impact of several reforms which change mortgage interest rates and/or loan-to-value (LTV) ratios of first time home buyers, the key drivers of house prices in recent decades. Simulations suggest that ending the GSE interest rate subsidy would have small effects, while changes in capital requirements or maximum FHA loan size limits would have larger effects.

Suggested Citation

  • John V. Duca & John Muellbauer & Anthony Murphy, 2016. "How Mortgage Finance Reform Could Affect Housing," American Economic Review, American Economic Association, vol. 106(5), pages 620-624, May.
    • Handle: RePEc:aea:aecrev:v:106:y:2016:i:5:p:620-24
    Note: DOI: 10.1257/aer.p20161083
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    References listed on IDEAS

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    1. Muellbauer, John & Murphy, Anthony & Duca, John V, 2011. "Shifting Credit Standards and the Boom and Bust in US House Prices," CEPR Discussion Papers 8361, C.E.P.R. Discussion Papers.
    2. John V. Duca & John Muellbauer & Anthony Murphy, 2011. "House Prices and Credit Constraints: Making Sense of the US Experience," Economic Journal, Royal Economic Society, vol. 121(552), pages 533-551, May.
    3. Gabriel, Stuart A. & Rosenthal, Stuart S., 2010. "Do the GSEs expand the supply of mortgage credit? New evidence of crowd out in the secondary mortgage market," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 975-986, December.
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    Citations

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    Cited by:

    1. Duca, John V. & Ling, David C., 2020. "The other (commercial) real estate boom and bust: The effects of risk premia and regulatory capital arbitrage," Journal of Banking & Finance, Elsevier, vol. 112(C).
    2. Giovanni Dosi & Lucrezia Fanti & Maria Enrica Virgillito, 2024. "Attributes and Trends of Rentified Capitalism," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 10(2), pages 435-457, July.
    3. Sá, Ana Isabel, 2023. "Recourse restrictions and judicial foreclosures: Effects of mortgage law on loan price and collateralization," International Review of Law and Economics, Elsevier, vol. 75(C).
    4. Cesa-Bianchi, Ambrogio & Rebucci, Alessandro, 2017. "Does easing monetary policy increase financial instability?," Journal of Financial Stability, Elsevier, vol. 30(C), pages 111-125.
    5. Muellbauer, John, 2016. "Macroeconomics and Consumption," CEPR Discussion Papers 11588, C.E.P.R. Discussion Papers.
    6. David F Hendry & John N J Muellbauer, 2018. "The future of macroeconomics: macro theory and models at the Bank of England," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 34(1-2), pages 287-328.
    7. John V. Duca & Lilit Popoyan & Susan M. Wachter, 2019. "Real Estate And The Great Crisis: Lessons For Macroprudential Policy," Contemporary Economic Policy, Western Economic Association International, vol. 37(1), pages 121-137, January.
    8. Nikodem Szumilo & Enrico Vanino, 2021. "Are Government and Bank Loans Substitutes or Complements? Evidence from Spatial Discontinuity in Equity Loans," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(3), pages 968-996, September.
    9. Menno Schellekens & Taha Yasseri, 2021. "Credit Crunch: The Role of Household Lending Capacity in the Dutch Housing Boom and Bust 1995-2018," Papers 2101.00913, arXiv.org.
    10. Muellbauer, John, 2018. "The Future of Macroeconomics," INET Oxford Working Papers 2018-10, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    11. Valérie Chauvin & John Muellbauer, 2018. "Consumption, household portfolios and the housing market in France," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 500-501-5, pages 157-178.
    12. Tyler Atkinson & John V. Duca, 2017. "Equity Regulation and U.S. Venture Capital Investment," Working Papers 1707, Federal Reserve Bank of Dallas.
    13. Lyons, Ronan C., 2018. "Credit conditions and the housing price ratio: Evidence from Ireland’s boom and bust," Journal of Housing Economics, Elsevier, vol. 42(C), pages 84-96.
    14. Duca, John V., 2017. "The Great Depression versus the Great Recession in the U.S.: How fiscal, monetary, and financial polices compare," Journal of Economic Dynamics and Control, Elsevier, vol. 81(C), pages 50-64.

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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