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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

Background and Context

Study Period

This study examines U.S. mortgage lending patterns from 2008-2017, comparing the post-crisis period (2011-2017) to the crisis period (2008-2010).

Data Source

Analysis uses Home Mortgage Disclosure Act (HMDA) data covering over 26 million approved and 4.9 million rejected mortgage applications.

Methodology

Researchers analyzed loan approval rates, sizes, and distribution patterns between large and small lenders using regression analysis and instrumental variables.

Shift in Mortgage Lending Distribution by Loan Size Over Time

  • Shows dramatic decline in small loans (below $200K) from 152 to 131 average loans per county
  • Demonstrates simultaneous increase in large loans (above $400K)
  • Illustrates regressive redistribution of mortgage credit starting in 2011

Large vs Small Lenders' Behavior After 2010

  • Top 5 lenders showed more extreme changes in lending patterns
  • Large lenders reduced small loans by 11.6% while increasing large loans by 17%
  • Smaller lenders showed more moderate changes in both directions

Loan Approval Rates Based on Size and Lender Type

  • Shows increasing approval rates for large loans by top 5 lenders
  • Demonstrates declining approval rates for small loans
  • Illustrates growing disparity in approval rates based on loan size

Change in Conforming Loan Limit Behavior

  • Shows declining tendency to bunch loans at the conforming loan limit ($417K)
  • Particularly pronounced for large lenders
  • Indicates structural change in lending behavior beyond conforming loan considerations

Geographic Distribution of Lending Changes

  • Counties with higher presence of top-5 lenders showed more extreme lending changes
  • Demonstrates geographic dimension of credit redistribution
  • Suggests systematic differences in credit access across locations

Contribution and Implications

  • First comprehensive documentation of regressive redistribution in mortgage lending after the 2008-2009 financial crisis
  • Identifies significant shift in credit availability that could affect wealth accumulation opportunities for middle-class households
  • Suggests regulatory costs may have unintended consequences on credit access

Data Sources

  • Loan size distribution charts based on Table 1 summary statistics
  • Lender behavior analysis derived from Table 2 regression results
  • Approval rates based on Table 2 and Table 3 regression coefficients
  • Conforming loan limit analysis based on Figure 4 density plots
  • Geographic distribution analysis based on instrumental variables results in Table 5