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Securitization and the Declining Impact of Bank Finance on Loan Supply: Evidence from Mortgage Originations

Authors

  • ELENA LOUTSKINA,

  • PHILIP E. STRAHAN

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    • Loutskina is with the University of Virginia, Darden School of Business, and Strahan is with Boston College Carroll School of Management, Wharton Financial Institutions Center and National Bureau of Economic Research.


ABSTRACT

Low-cost deposits and increased balance sheet liquidity raise banks' supply of illiquid loans more than loans easily sold or securitized. We exploit the inability of Fannie Mae and Freddie Mac to purchase jumbo mortgages to identify an exogenous change in liquidity. The volume of jumbo mortgage originations relative to nonjumbo originations increases with bank holdings of liquid assets and decreases with bank deposit costs. This result suggests that the increasing depth of the mortgage secondary market fostered by securitization has reduced the effect of lender's financial condition on credit supply.

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