Children playing in the driveway and on the sidewalk outside the family's home

Working Paper

Concentration in Mortgage Markets: GSE Exposure and Risk-Taking in Uncertain Times

Ronel Elul
Deeksha Gupta
David K. Musto

Revised December 2020

WP 20-04/R - When home prices threaten to decline, large mortgage investors can benefit from fostering new lending that boosts demand. We ask whether this benefit contributed to the growth in acquisitions of risky mortgages by the government-sponsored enterprises (GSEs) in the first half of 2007.

A previous version of this working paper was originally published in January 2020.

We find that it helps explain the variation of this growth across regions, in particular the growth of more discretionary acquisitions. The growth predicted by this benefit is on top of the acquisition growth caused by the exit of private-label securitizers. We conclude that the GSEs actively targeted their acquisitions to combat home-price declines.