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Report
Nonconforming Preferences: Jumbo Mortgage Lending and Large Bank Stress Tests
The 2010s saw a profound shift towards jumbo mortgage lending by large banks that are regulated under the Dodd-Frank Act. Using data from the Home Mortgage Disclosure Act, we show that the “jumbo shift” is correlated with being subject to the Comprehensive Capital Analysis and Review (CCAR) stress tests, and that financial regulation caused CCAR-regulated banks to change preference for nonconforming relative to conforming loans of similar size. We discuss potential mechanisms through which regulation could have affected bank incentives.
Working Paper
The Interest Rate Elasticity of Mortgage Demand: Evidence From Bunching at the Conforming Loan Limit
The relationship between the mortgage interest rate and a household's demand for mortgage debt has important implications for a host of public policy questions. In this paper, we use detailed data on over 2.7 million mortgages to provide novel estimates of the interest rate elasticity of mortgage demand. Our empirical strategy exploits a discrete jump in interest rates generated by the conforming loan limit--the maximum loan size eligible for securitization by Fannie Mae and Freddie Mac. This discontinuity creates a large ``notch" in the intertemporal budget constraint of prospective ...