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Concentration in Mortgage Markets: GSE Exposure and Risk-Taking in Uncertain Times

Author

Listed:
  • Ronel Elul
  • Deeksha Gupta
  • David K. Musto

Abstract

When home prices threaten to decline, large investors may attempt to prop up prices by fostering new lending. We show this motive increased acquisitions of risky mortgages by the government-sponsored enterprises in the first half of 2007. When home prices threaten to decline, large mortgage investors can benefit from fostering new lending that boosts demand. We ask whether this benefit contributed to the growth in acquisitions of risky mortgages by the government-sponsored enterprises (GSEs) in the first half of 2007. We find that it helps explain the variation of this growth across regions as well as regional house price and credit changes. The growth predicted by this benefit is on top of the acquisition growth caused by the exit of private-label securitizers. Our results are consistent with the GSEs actively targeting their acquisitions to counter home-price declines.

Suggested Citation

  • Ronel Elul & Deeksha Gupta & David K. Musto, 2025. "Concentration in Mortgage Markets: GSE Exposure and Risk-Taking in Uncertain Times," Working Papers 25-12, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:99739
    DOI: 10.21799/frbp.wp.2025.12
    Note: This paper supersedes 20-04
    as

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    File URL: https://www.philadelphiafed.org/-/media/FRBP/Assets/working-papers/2025/wp25-12.pdf
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    More about this item

    Keywords

    GSEs; Concentration; Risk Exposure;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • 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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