2016
DOI: 10.1111/jmcb.12337
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Two Extensive Margins of Credit and Loan‐to‐Value Policies

Abstract: We analyze a model of mortgage markets, housing tenure choice, heterogeneous agents, and default with closed form solutions. We uncover new insights which may inspire empirical work, and we ground already established insights in a series of tractable expressions. Then we study optimal loan-to-value (LTV) regulation and show that the choice of an LTV cap should balance the opposing forces of access to homeownership and the negative externalities associated with default. Homeownership affordability concerns indu… Show more

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Cited by 23 publications
(13 citation statements)
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“…This paper also relates to a literature that studies the effects of monetary policy on mortgage choice and on mortgage holders. Gete and Reher () show how changes in risk‐free rates affect in particular households with high debt burdens. Krainer () and Moench, Vickery, and Aragon () study the extent to which the unconventional monetary policy of the Federal Reserve might have affected mortgage choice for new mortgage originations and suggest that FRMs have become relatively more attractive, e.g., due to the large‐scale purchases of (fixed‐rate) mortgage‐backed securities.…”
Section: Literature Reviewmentioning
confidence: 99%
“…This paper also relates to a literature that studies the effects of monetary policy on mortgage choice and on mortgage holders. Gete and Reher () show how changes in risk‐free rates affect in particular households with high debt burdens. Krainer () and Moench, Vickery, and Aragon () study the extent to which the unconventional monetary policy of the Federal Reserve might have affected mortgage choice for new mortgage originations and suggest that FRMs have become relatively more attractive, e.g., due to the large‐scale purchases of (fixed‐rate) mortgage‐backed securities.…”
Section: Literature Reviewmentioning
confidence: 99%
“…The probability value of the LTV instrument of 0.071 less than the alpha value ( = 10%) gives an idea that the LTV instrument influences on credit growth. LTV instruments that can affect credit growth in accordance with research conducted by Gete and Reher (2016); Cronin and Mcquinn (2016); Hongkong Monetary Authority (2010). However, in dealing with the procyclicality of credit, the ineffective LTV instrument seen in Model 2 shows from the probability value of the LTV instrument 0.395 greater than the alpha value ( = 10%).…”
Section: Resultsmentioning
confidence: 62%
“…The mechanism that we test was originally proposed by Linneman and Wachter (1989) and is formalized by Gete and Reher (2016). 1 It begins with a shock that contracts mortgage supply for some lenders such as, for example, greater regulatory costs because of stress testing.…”
Section: Introductionmentioning
confidence: 99%
“…If that were the case and the MSAs more exposed to our credit instruments also experienced positive demand shocks, then we might observe a positive and significant relationship not only between instrumented denials and rents but also between instrumented denials and prices. This is because demand shocks can generate comovement between prices and rents as shown in Gete and Reher (2016) and Gete and Zecchetto (2017), among others. 3 However, we find no evidence to support this concern.…”
Section: Introductionmentioning
confidence: 99%