Mortgages: Policies and Regulations
Paper Session
Monday, Jan. 5, 2026 10:15 AM - 12:15 PM (EST)
- Chair: Stijn Van Nieuwerburgh, Columbia University
Why Do Lenders Reject Loans with Government Guarantees?
Abstract
Households with a Federal Housing Administration (FHA) loan who refinance to a new FHA loan may overpay on their mortgage. I study frictions involved in mortgage refinance product choices. Using loan level data, I find that about 40% of FHA-to-FHA refinancers during 2009-2020 could have saved approximately $110 (10%) per month and $2,957 upfront by switching to a conventional Government Sponsored Enterprise (GSE) loan at refinance. Minority and low-income FHA borrowers are less likely to make the switch. These borrowers continue to pay an avoidable mortgage insurance premium (MIP), even though their property value appreciation are qualified for a GSE loan, since they do not reassess their property value when refinance. I then examine both demand-side and supply-side channels to explain these frictions. On the demand side, I find that property value information updates can reduce refinance frictions. Households who received an updated property tax bill are more likely to refinance to a GSE loan. On the supply side, I demonstrate that lenders may prefer FHA-to-FHA refinance loans due to higher upfront fees and securitization revenue. An exogenous increase in lenders’ revenue (cost) of originating FHA loans results in less (more) refinance to GSE mortgages.Forbearance and the Cost of Credit
Abstract
Forbearance policies are designed to protect borrowers and stabilize demand during downturns, but we uncover an important unintended consequence. Using novel data from the GSE Credit Risk Transfer market and the 2020 CARES Act as a natural experiment, we show that private investors priced in a significantly higher cost of default risk following the Act’s enactment. This effect was most pronounced in judicial states, where foreclosure costs are higher for lenders. Our difference-in-differences strategy and policy simulations reveal a key trade-off in forbearance design: policies that aid borrowers may simultaneously discourage private lending.Determinants of Pandemic-era CRE Distress: Implications for the Banking Sector
Abstract
We develop a two-step process to examine U.S. banks’ exposure to pandemic-era commercial real estate (CRE) market strains and the extent to which unobserved behavior such as evergreening could be masking distress. We first use loan-level data on large banks’ CRE portfolios to identify recent drivers of loan distress. We then examine the near-universe of CRE loan transactions to assess banks’ exposure to high-default-risk CRE loans. Using several machine-learning algorithms, we demonstrate that cross-lender differences in CRE loan performance are broadly attributed to observable loan characteristics. In particular, small banks’ strong performance reflects low holdings of at-risk office loans.Discussant(s)
Kasper Meisner Nielsen
,
Copenhagen Business School
Felipe Severino
,
Dartmouth College
Agostino Capponi
,
Columbia University
James Vickery
,
Federal Reserve Bank of Philadelphia
JEL Classifications
- G2 - Financial Institutions and Services