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David Min - One of the best experts on this subject based on the ideXlab platform.
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Housing Finance reform and the shadow money supply
Social Science Research Network, 2018Co-Authors: David MinAbstract:The election of Donald Trump alongside libertarian majorities in the House and Senate is likely to jumpstart Housing Finance reform efforts, and it appears almost certain that the federal government’s role in Housing Finance will be significantly reduced. A number of legal and economic analyses have looked at the effects that Housing Finance reform may have on the availability of mortgage funding for American households. However, these commentaries have to date overlooked the implications that such reform presents for the global money supply. This Article shows that: (1) Housing Finance has historically played an important role in money creation; (2) Fannie and Freddie today are a major producer of government-backed “safe assets;” and (3) these safe assets are at the heart of money creation in the shadow banking system today, which is an important part of the overall money supply. Accordingly, this Article argues that Housing Finance reform as it is currently being contemplated is likely to have negative near-term and long-term implications for financial stability and monetary policy. Policy makers should carefully consider these effects of major changes to the Housing Finance system on the money supply before committing to any course of action.
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written testimony of david k min before the united states senate committee on banking Housing urban affairs Housing Finance reform developing a smooth plan for transition
Social Science Research Network, 2013Co-Authors: David MinAbstract:This testimony analyzes the transition proposed by S. 1217, the Housing Finance Reform and Taxpayer Protection Act of 2013, proposed by Sens. Corker (R-TN) and Warner (D-VA), and identifies six issues that need to be addressed for a successful transition: (1) the development of a common securitization platform and single security; (2) achieving liquidity for the new MBS contemplated by Corker-Warner; (3) responsibly reducing conforming loan limits; (4) ensuring the continued flow of mortgage Finance for underserved market segments; (5) attracting sufficient and appropriately priced capital into the new system; and (6) maintaining sources of countercyclical liquidity. Such a transition would be the largest such undertaking in history, and one that, to the best of my knowledge, has no close precedents. Fannie and Freddie currently hold slightly more than $5 trillion in mortgage-related assets. Since the sudden and steep decline in private mortgage Finance that occurred in 2008, the two enterprises have been responsible for more than 60% of the new mortgage originations, about $1.7 trillion each year, an amount equivalent to slightly more than 10% of our nation’s annual gross domestic product. The federal government has some experience in resolving failed institutions — recently, the government’s interactions with AIG and General Motors come to mind, and before that, we had the experience of the Resolution Trust Company in resolving hundreds of failed thrifts. But I can think of no instance in which we have tried to simultaneously resolve large failed institutions and transition their core economic functions into a newly created set of institutions, certainly not on the scale imagined by Corker-Warner. The guiding principle for legislators and regulators who are structuring our Housing Finance transition must first and foremost be, “Do no harm.” Avoiding the disruption of mortgage liquidity, either systemwide or in individual market segments, should be a paramount concern during this period. A failure to adhere to this principle would be catastrophic for the Housing markets and the broader economy.I suggest a number of changes to Corker-Warner's transition plan: (1) delegate more responsibility to regulators and remove arbitrary timetables; (2) phase in the transition in parts (such as starting with the 15-year fixed-rate mortgage or high cost conforming loans), rather than all at once; (3) convert legacy securities into the new MBS created under Corker-Warner; (4) pre-approve these new MBS for use in the "To Be Announced Market" and as collateral for Fed lending, repo markets and derivatives transactions to increase liquidity; (5) give a running start to institutions focused on underserved markets (particularly affordable rental Housing); and (6) prove expanded emergency powers to create sources of countercyclical liquidity.
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written testimony of david k min before the united states house of representatives committee on financial services beyond gses examples of successful Housing Finance models without explicit government guarantees
Social Science Research Network, 2013Co-Authors: David MinAbstract:Written testimony on the topic of alternative Housing Finance models. This paper makes the following seven points: 1. Government guarantees are universal. 2. European covered bonds are best thought of as government-sponsored obligations. 3. Government guarantees are prevalent because they address key market failures in Housing Finance. 4. There is no perfect Housing Finance model. 5. The common thread in global Housing bubbles was financial deregulation. 6. Explicit, ex ante guarantees are preferable to implicit, ex post guarantees. 7. Given U.S. political priorities, improving the status quo may be preferable to importing other models.
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why the 30 year fixed rate mortgage is an essential part of our Housing Finance system
2010Co-Authors: David MinAbstract:As major reforms of the U.S. Housing Finance system are contemplated, many have begun to question whether public policy should continue to emphasize the 30-year fixed-rate mortgage, the pillar of modern U.S. Housing Finance.As this paper argues, there are three major arguments in favor of continuing to emphasize the 30-year fixed-rate loan in the United States.• First, the 30-year fixed-rate mortgage provides cost certainty to borrowers, which means they default far less on these loans than for other products, particularly during periods of high interest rate volatility.• Second, the 30-year fixed-rate mortgage leads to greater stability in the financial markets because it places the interest rate risk with more sophisticated financial institutions and investors who can plan for and hedge against interest rate fluctuations, rather than with unsophisticated households who have no such capacity to deal with this risk and who are already saddled with an enormous amount of financial burden and economic uncertainty.• Third, the 30-year fixed-rate mortgage leads to greater stability in the economy because short-term mortgages are much more sensitive to interest rate fluctuations and thus much more likely to trigger a bubble-bust cycle in the Housing markets. Indeed, there may be reason to believe that a primary cause of the recent Housing bubble-and-bust cycle was the rapid growth of short-duration mortgages during the 2000s, which caused U.S. home prices to become more sensitive to the low interest rate environment created by Alan Greenspan’s Federal Reserve.
Livio Stracca - One of the best experts on this subject based on the ideXlab platform.
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Housing Finance and monetary policy
Journal of the European Economic Association, 2013Co-Authors: Alessandro Calza, Tommaso Monacelli, Livio StraccaAbstract:We study how the structure of Housing Finance affects the transmission of monetary policy shocks. We document three main facts: first, the features of residential mortgage markets differ markedly across industrialized countries; second, and according to a wide range of indicators, the transmission of monetary policy shocks to residential investment and house prices is significantly stronger in those countries with larger flexibility/development of mortgage markets; third, the transmission to consumption is stronger only in those countries where mortgage equity release is common and mortgage contracts are predominantly of the variable-rate type. We build a two-sector DSGE model with price stickiness and collateral constraints and analyse how the response of consumption and residential investment to monetary policy shocks is affected by alternative values of two institutional features: (i) down-payment rate; (ii) interest rate mortgage structure (variable vs. fixed rate). In line with our empirical evidence, the sensitivity of both variables to monetary policy shocks increases with lower values of the down-payment rate and is larger under a variable-rate mortgage structure. JEL Classification: E21, E44, E52
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Housing Finance and monetary policy
Journal of the European Economic Association, 2013Co-Authors: Alessandro Calza, Tommaso Monacelli, Livio StraccaAbstract:We document three facts concerning how the structure of Housing Finance affects the monetary transmission mechanism: first, the characteristics of residential mortgage markets differ markedly across industrialized countries; second, the impact of monetary policy shocks to residential investment and house prices is significantly stronger in those countries with larger flexibility/development of mortgage markets; third, the transmission to consumption is stronger only in those countries where mortgage equity release is common and mortgage contracts are predominantly of the variable-rate type. We then build a two-sector DSGE model with financial constraints to rationalize those facts.
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Housing Finance and monetary policy
Social Science Research Network, 2009Co-Authors: Alessandro Calza, Tommaso Monacelli, Livio StraccaAbstract:We study how the structure of Housing Finance affects the transmission of monetary policy shocks. We document three main facts: first, the features of residential mortgage markets differ markedly across industrialized countries; second, and according to a wide range of indicators, the transmission of monetary policy shocks to residential investment and house prices is significantly stronger in those countries with larger flexibility/development of mortgage markets; third, the transmission to consumption is stronger only in those countries where mortgage equity release is common and mortgage contracts are predominantly of the variable-rate type. We build a two-sector DSGE model with price stickiness and collateral constraints and analyze how the response of consumption and residential investment to monetary policy shocks is affected by alternative values of two institutional features: (i) down-payment rate; (ii) interest rate mortgage structure (variable vs. fixed rate). In line with our empirical evidence, the sensitivity of both variables to monetary policy shocks increases with lower values of the down-payment rate and is larger under a variable- rate mortgage structure.
Stijn Van Nieuwerburgh - One of the best experts on this subject based on the ideXlab platform.
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the macroeconomic effects of Housing wealth Housing Finance and limited risk sharing in general equilibrium
Journal of Political Economy, 2017Co-Authors: Jack Y Favilukis, Sydney C Ludvigson, Stijn Van NieuwerburghAbstract:This paper studies a quantitative general equilibrium model of Housing. The model has two key elements not previously considered in existing quantitative macro studies of Housing Finance: aggregate business cycle risk and a realistic wealth distribution driven in the model by bequest heterogeneity in preferences. These features of the model play a crucial role in the following results. First, a relaxation of financing constraints leads to a large boom in house prices. Second, the boom in house prices is entirely the result of a decline in the Housing risk premium. Third, low interest rates cannot explain high home values.
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the macroeconomic effects of Housing wealth Housing Finance and limited risk sharing in general equilibrium
National Bureau of Economic Research, 2010Co-Authors: Jack Y Favilukis, Sydney C Ludvigson, Stijn Van NieuwerburghAbstract:This paper studies a quantitative general equilibriummodel of the Housing market where a large number of overlapping generations of homeowners face both idiosyncratic and aggregate risks but have limited opportunities to insure against these risks due to incomplete financial markets and collateralized borrowing constraints. Interest rates in the model, like Housing and equity returns, are determined endogenously from a market clearing condition. The model has two key elements not previously considered in existing quantitative macro studies of Housing Finance: aggregate business cycle risk, and a realistic wealth distribution driven in the model by bequest heterogeneity in preferences. These features of the model play a crucial role in the following results. First, a relaxation of financing constraints leads to a large boom in house prices. Second, the boom in house prices is entirely the result of a decline in the Housing risk premium. Third, low interest rates cannot explain high home values.
Alessandro Calza - One of the best experts on this subject based on the ideXlab platform.
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Housing Finance and monetary policy
Journal of the European Economic Association, 2013Co-Authors: Alessandro Calza, Tommaso Monacelli, Livio StraccaAbstract:We study how the structure of Housing Finance affects the transmission of monetary policy shocks. We document three main facts: first, the features of residential mortgage markets differ markedly across industrialized countries; second, and according to a wide range of indicators, the transmission of monetary policy shocks to residential investment and house prices is significantly stronger in those countries with larger flexibility/development of mortgage markets; third, the transmission to consumption is stronger only in those countries where mortgage equity release is common and mortgage contracts are predominantly of the variable-rate type. We build a two-sector DSGE model with price stickiness and collateral constraints and analyse how the response of consumption and residential investment to monetary policy shocks is affected by alternative values of two institutional features: (i) down-payment rate; (ii) interest rate mortgage structure (variable vs. fixed rate). In line with our empirical evidence, the sensitivity of both variables to monetary policy shocks increases with lower values of the down-payment rate and is larger under a variable-rate mortgage structure. JEL Classification: E21, E44, E52
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Housing Finance and monetary policy
Journal of the European Economic Association, 2013Co-Authors: Alessandro Calza, Tommaso Monacelli, Livio StraccaAbstract:We document three facts concerning how the structure of Housing Finance affects the monetary transmission mechanism: first, the characteristics of residential mortgage markets differ markedly across industrialized countries; second, the impact of monetary policy shocks to residential investment and house prices is significantly stronger in those countries with larger flexibility/development of mortgage markets; third, the transmission to consumption is stronger only in those countries where mortgage equity release is common and mortgage contracts are predominantly of the variable-rate type. We then build a two-sector DSGE model with financial constraints to rationalize those facts.
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Housing Finance and monetary policy
Social Science Research Network, 2009Co-Authors: Alessandro Calza, Tommaso Monacelli, Livio StraccaAbstract:We study how the structure of Housing Finance affects the transmission of monetary policy shocks. We document three main facts: first, the features of residential mortgage markets differ markedly across industrialized countries; second, and according to a wide range of indicators, the transmission of monetary policy shocks to residential investment and house prices is significantly stronger in those countries with larger flexibility/development of mortgage markets; third, the transmission to consumption is stronger only in those countries where mortgage equity release is common and mortgage contracts are predominantly of the variable-rate type. We build a two-sector DSGE model with price stickiness and collateral constraints and analyze how the response of consumption and residential investment to monetary policy shocks is affected by alternative values of two institutional features: (i) down-payment rate; (ii) interest rate mortgage structure (variable vs. fixed rate). In line with our empirical evidence, the sensitivity of both variables to monetary policy shocks increases with lower values of the down-payment rate and is larger under a variable- rate mortgage structure.
Tommaso Monacelli - One of the best experts on this subject based on the ideXlab platform.
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Housing Finance and monetary policy
Journal of the European Economic Association, 2013Co-Authors: Alessandro Calza, Tommaso Monacelli, Livio StraccaAbstract:We study how the structure of Housing Finance affects the transmission of monetary policy shocks. We document three main facts: first, the features of residential mortgage markets differ markedly across industrialized countries; second, and according to a wide range of indicators, the transmission of monetary policy shocks to residential investment and house prices is significantly stronger in those countries with larger flexibility/development of mortgage markets; third, the transmission to consumption is stronger only in those countries where mortgage equity release is common and mortgage contracts are predominantly of the variable-rate type. We build a two-sector DSGE model with price stickiness and collateral constraints and analyse how the response of consumption and residential investment to monetary policy shocks is affected by alternative values of two institutional features: (i) down-payment rate; (ii) interest rate mortgage structure (variable vs. fixed rate). In line with our empirical evidence, the sensitivity of both variables to monetary policy shocks increases with lower values of the down-payment rate and is larger under a variable-rate mortgage structure. JEL Classification: E21, E44, E52
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Housing Finance and monetary policy
Journal of the European Economic Association, 2013Co-Authors: Alessandro Calza, Tommaso Monacelli, Livio StraccaAbstract:We document three facts concerning how the structure of Housing Finance affects the monetary transmission mechanism: first, the characteristics of residential mortgage markets differ markedly across industrialized countries; second, the impact of monetary policy shocks to residential investment and house prices is significantly stronger in those countries with larger flexibility/development of mortgage markets; third, the transmission to consumption is stronger only in those countries where mortgage equity release is common and mortgage contracts are predominantly of the variable-rate type. We then build a two-sector DSGE model with financial constraints to rationalize those facts.
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Housing Finance and monetary policy
Social Science Research Network, 2009Co-Authors: Alessandro Calza, Tommaso Monacelli, Livio StraccaAbstract:We study how the structure of Housing Finance affects the transmission of monetary policy shocks. We document three main facts: first, the features of residential mortgage markets differ markedly across industrialized countries; second, and according to a wide range of indicators, the transmission of monetary policy shocks to residential investment and house prices is significantly stronger in those countries with larger flexibility/development of mortgage markets; third, the transmission to consumption is stronger only in those countries where mortgage equity release is common and mortgage contracts are predominantly of the variable-rate type. We build a two-sector DSGE model with price stickiness and collateral constraints and analyze how the response of consumption and residential investment to monetary policy shocks is affected by alternative values of two institutional features: (i) down-payment rate; (ii) interest rate mortgage structure (variable vs. fixed rate). In line with our empirical evidence, the sensitivity of both variables to monetary policy shocks increases with lower values of the down-payment rate and is larger under a variable- rate mortgage structure.