Clogged Intermediation: Were Home Buyers Crowded Out?

52 Pages Posted: 7 Nov 2017 Last revised: 28 Sep 2021

See all articles by Dong Beom Choi

Dong Beom Choi

Seoul National University - Business School

Hyun-Soo Choi

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Jung-Eun Kim

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: September 28, 2021

Abstract

Post-crisis policy interventions significantly increased the demand for mortgage refinancing, but there is an unexplored possibility that the surge in refinancing applications crowded out the supply of credit to home buyers. We examine two frictions that hamper financial intermediation and cause banks to substitute away from home purchase loans and toward refinance loans. Banks with limited risk capacity may prefer safer loans, and banks with limited operating capacity may prefer applications that require less processing time. We find that, following the 2008 financial crisis, banks constrained by these capacity limits rationed credit to home buyers while supplying more refinancing credit.

Keywords: Credit rationing, mortgage lending, operating capacity, monetary transmission, distributional effects

JEL Classification: G21, G28, G51

Suggested Citation

Choi, Dong Beom and Choi, Hyun-Soo and Kim, Jung-Eun, Clogged Intermediation: Were Home Buyers Crowded Out? (September 28, 2021). Available at SSRN: https://ssrn.com/abstract=3065618 or http://dx.doi.org/10.2139/ssrn.3065618

Dong Beom Choi (Contact Author)

Seoul National University - Business School ( email )

Seoul
Korea, Republic of (South Korea)

Hyun-Soo Choi

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro Dongdaemun-Gu
Seoul 02455
Korea, Republic of (South Korea)

Jung-Eun Kim

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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