Credit supply shocks in the US housing market

• Main Author: La Cava, Giancarlo
• Published: London School of Economics and Political Science (University of London) 2013
• Subjects: 332.7; HG Finance
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.574164

The aim of my thesis is to study the impact of three different types of credit supply shocks on the US economy during the recent boom-bust cycle. I apply rigourous identification strategies using a comprehensive mortgage loan-application level dataset that spans two decades to identify the causal effect of each shock on the US housing market { the market at the epicentre of the recent global financial crisis. The first chapter examines how shocks to the geographic distance between borrowers and lenders affected the quality of loans originated by US banks. I show that US banks that originated loans at relatively long distances recorded relatively high shares of delinquent mortgages, which suggests that geographic distance hampers a bank's ability to screen bor- rowers. The second chapter assesses how the supply of mortgage credit was affected by the closure of the private-label securitisation market in 2007. By impairing lender financing conditions, I demonstrate that the shock to the securitisation market caused US mortgage lenders to curtail new lending and that this adversely affected the aggregate level of new mortgage credit. The third chapter explores whether shocks to bank lending standards affect household borrowing and spending. I show that the introduction of US state anti-predatory lending laws, by tightening lending standards, caused a decline in the level of household mortgage credit, although this had little subsequent impact on household spending.