Regional Redistribution through the US Mortgage Market
- (pp. 2982-3028)
Abstract
Regional shocks are an important feature of the US economy. Households' ability to self-insure against these shocks depends on how they affect local interest rates. In the United States, most borrowing occurs through the mortgage market and is influenced by the presence of government-sponsored enterprises (GSE). We establish that despite large regional variation in predictable default risk, GSE mortgage rates for otherwise identical loans do not vary spatially. In contrast, the private market does set interest rates which vary with local risk. We use a spatial model of collateralized borrowing to show that the national interest rate policy substantially affects welfare by redistributing resources across regions.Citation
Hurst, Erik, Benjamin J. Keys, Amit Seru, and Joseph Vavra. 2016. "Regional Redistribution through the US Mortgage Market." American Economic Review, 106 (10): 2982-3028. DOI: 10.1257/aer.20151052Additional Materials
JEL Classification
- E32 Business Fluctuations; Cycles
- E43 Interest Rates: Determination, Term Structure, and Effects
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- L32 Public Enterprises; Public-Private Enterprises
- R11 Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
- R31 Housing Supply and Markets