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An Altered U.S. Housing Finance System: Implications for Housing

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  • Patric H. Hendershott

Abstract

During the 1960s and 1970s, the U.S. government closely regulated the single-family housing finance system. The regulation manifested itself in a highly specialized system with four notable characteristics: portfolio restrictions against investments in corporate assets, tax inducements to invest in residential mortgages, prohibitions against investing in ARMS, and deposit rates ceilings. All were removed in the 1980s, and, not surprisingly, the housing finance system changed markedly. Between early 1982 and 1989, two-fifths of all new loans had adjustable, not fixed, rates, and savings and loans reduced their holdings of FRMs (both whole loans and mortgage pass-throughs) by 15 to 20 percent. Moreover, the fraction of conventional FRM originations that have been pooled into pass-throughs rose from less than one-twentieth before 1981 to over one-half after 1985. With the opportunity of borrowers to shift to lower coupon ARMs when rates rise and with the integration of the home mortgage market with capital markets generally, one would expect that the U.S. housing sector is now less sensitive to rising interest rates than it was in the 1960s and 1970s. Numerous studies support this expectation.

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  • Patric H. Hendershott, 1991. "An Altered U.S. Housing Finance System: Implications for Housing," NBER Working Papers 3770, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3770
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    1. Randall Pozdena, 1990. "Do interest rates still affect housing?," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 3-14.
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    3. Jonathan McCarthy & Richard Peach, 2002. "Monetary policy transmission to residential investment," Economic Policy Review, Federal Reserve Bank of New York, vol. 8(May), pages 139-158.

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