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Regressive Mortgage Credit Redistribution in the Post-crisis Era

Journal: Review of Financial Studies

Date: 20220101

Author: D'Acunto, Francesco; Rossi, Alberto G.

Abstract:
We document four secular trends about U.S. mortgage origination by traditional and FinTech lenders after the 2008-2009 financial crisis. First, since 2011, the overall number, size, and approval rate of small and medium-sized loans have been decreasing over time, relative to large loans. Second, the largest lenders redistribute their lending the most. Third, this loan-size redistribution of credit increases in the size of the lender. Fourth, the effects are stronger for mortgages further away from the conforming loan limit(s) in both directions. We argue that the supply of credit drives these secular trends, and we assess several potential economic mechanisms.

Link: Google Scholar

Key Findings

Size Distribution Shift

Since 2011, U.S. lenders have shifted mortgage origination from small/medium loans to larger loans, with larger lenders driving this trend most aggressively

Lender Size Impact

The extent of credit redistribution increased proportionally with lender size, with top-5 lenders showing the strongest shift away from smaller loans

Conforming Loan Effects

Loans further away from conforming loan limits drove the redistribution, rather than loans clustering around the limits

Mortgage Origination Changes by Loan Size

  • Loans below $200K dropped from 152 in 2008 to 131 in 2017 (14% decrease)
  • Loans $201K-$400K increased from 31% to 43% between 2011-2017
  • Largest loans ($800K+) increased from 0.8% to 1.4% of originations

Top-5 vs Other Lenders Approval Rates

  • Top-5 lenders' approval probability was 17% higher pre-2010
  • 3.4 percentage point higher approval rate for larger loans after 2010 by top-5 lenders
  • 2 percentage point higher approval rate for larger loans by smaller lenders

Distribution Changes Around Conforming Loan Limits

  • Bunching at $417K conforming limit disappeared by 2017
  • Redistribution driven by loans well below and above limits
  • Top-5 lenders showed strongest shift away from conforming loan clustering

Contribution and Implications

  • First comprehensive documentation of regressive mortgage credit redistribution in post-crisis era
  • Evidence that supply-side factors, particularly increased regulatory costs, drove the redistribution
  • Findings suggest potentially reduced credit access for middle-class homebuyers

Data Sources

  • Loan size distribution chart based on Figure 1 county-level averages and lender-level shares
  • Approval rates visualization derived from Table 2 regression results
  • Conforming loan limit analysis based on Figure 4 density plots and Table 4 quantile regression results