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

Ronel Elul, Deeksha Gupta and David K. Musto

No 25-12, Working Papers from Federal Reserve Bank of Philadelphia

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.

Keywords: GSEs; Concentration; Risk Exposure (search for similar items in EconPapers)
JEL-codes: G01 G21 L25 R31 (search for similar items in EconPapers)
Pages: 63
Date: 2025-03-28
Note: This paper supersedes 20-04
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DOI: 10.21799/frbp.wp.2025.12

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