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Do Mortgage Loans Respond Perversely to Monetary Policy?

Author

Listed:
  • Ali Termos

    (American University of Beirut)

  • Mohsen Saad

    (American University of Sharjah)

Abstract

We investigate the response of loan growth to monetary policy shocks while controlling for loan securitization. Our major finding is that while commercial and industrial (C&I) loans and consumer loans respond to monetary policy asymmetrically according to theoretical predictions, mortgage loans show a reverse asymmetric response. In other words, while other loans are more responsive to contractionary than to expansionary shifts in monetary policy of the same magnitude, mortgage loans tend to respond inversely. Contrary to the bank lending channel predictions, expansionary monetary policy increases mortgage loan growth more than contractionary monetary policy of the same magnitude reduces this growth. We find that this reverse asymmetric response of mortgage loans is mainly driven by the securitization of these loans. Further, we show that this result is most pronounced for single-family home mortgages.

Suggested Citation

  • Ali Termos & Mohsen Saad, 2016. "Do Mortgage Loans Respond Perversely to Monetary Policy?," Journal of Real Estate Research, American Real Estate Society, vol. 38(2), pages 251-290.
    • Handle: RePEc:jre:issued:v:38:n:2:2016:p:251-290
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    Cited by:

    1. Deku, Solomon Y. & Kara, Alper & Zhou, Yifan, 2019. "Securitization, bank behaviour and financial stability: A systematic review of the recent empirical literature," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 245-254.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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