« Back to Results

Policies and Regulation in Mortgage Markets

Paper Session

Friday, Jan. 3, 2020 10:15 AM - 12:15 PM (PDT)

Manchester Grand Hyatt, Nautical
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Tess Scharlemann, Federal Reserve Board

Unintended Consequences of LTV Limits on Credit and Housing Choices

Nitzan Tzur-ilan
Northwestern University and Bank of Israel


This paper investigates the implications of credit constraints on housing decisions. I exploit the introduction of LTV limits in Israel in the years 2010 and 2012 and find that LTV limits increase interest rate and reduce loan amount. Although borrowers continue borrowing and purchase apartments, the LTV limits induced them to buy cheaper homes and to move farther from high demand areas to lower socio-economic neighborhoods. Buy-to-let investors were more affected by the LTV limit than first-time home buyers. My evidence suggests that LTV limits - a commonly used macro-prudential policy tool - affects not only financial stability but also affects borrowers’ decisions in the credit and housing markets.

Mortgage Brokers and the Effectiveness of Regulatory Oversights

Yonglin Wang
Lingnan University
Sumit Agarwal
National University of Singapore
Yongheng Deng
University of Wisconsin-Madison


This paper studies the heterogeneous responses among different types of mortgage brokers to the consolidated occupational licensing regulations. We explicitly account for the heterogeneities between sole brokers and corporate brokers. Our findings suggest that sole brokers respond to the reinforced regulatory oversights by applying a more stringent screening process in loan originations based on soft information, hence achieve better subsequent loan performances. In contrast, we find no regulatory effect on corporate brokers. The agency problem among sole brokers can be mitigated by consolidated financial requirement for occupational licensing. However, such provision turns out to be ineffective in governing corporate brokers.

Effects of the Community Reinvestment Act (CRA) on Small Business Lending

Lei Ding
Federal Reserve Bank of Philadelphia
Raphael Bostic
University of Southern California
Hyojung Lee
Harvard University


This study provides new evidence on the effectiveness of the Community Reinvestment Act (CRA) on small business lending by focusing on a sample of neighborhoods with changed CRA eligibility status across the country because of an exogenous policy shock in 2013. The results of difference-in-differences analysis provide consistent evidence that the CRA promotes small business lending, especially in terms of number of loan originations, in lower-income neighborhoods. The generally positive effects of the CRA are sensitive to the types of CRA treatment. Losing CRA eligibility status has a relatively larger effect on small business lending activities, while the effects of newly gaining CRA eligibility are less pronounced. The results are fairly robust when alternative sample periods and control groups are used.

The Political Economy of Mortgage Lending

Yongqiang Chu
University of North Carolina-Charlotte
Teng Zhang
University of Wyoming


We examine whether banks use mortgage lending as a tool for political influence seeking. We find that the approval rates of mortgage applications from the home states of the Senate Banking Committee chairs are higher than other states, which amounts to about $37-$38 million dollars of extra mortgage credit extended to the home state of the Senate Banking Committee Chair. We use the geographic regression discontinuity design by comparing the census tracts close to the state borders to ensure that the results are not driven by demand-side factors. We also find that the effect is more pronounced when the incumbent banking chair is up for re-election. We do not find a similar effect for other powerful committee chairs. We also do not find the effect for non-bank lenders.
Stephanie Johnson
Rice University
Antje Berndt
Australian National University
Daniel Ringo
Federal Reserve Board
Stefan Lewellen
Pennsylvania State University
JEL Classifications
  • G2 - Financial Institutions and Services
  • R2 - Household Analysis