
Contents
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14.1 Introduction 14.1 Introduction
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14.2 Residential Mortgage Features 14.2 Residential Mortgage Features
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14.2.1 Mortgage Payments 14.2.1 Mortgage Payments
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14.2.2 The Credit-Extension Decision 14.2.2 The Credit-Extension Decision
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14.2.3 Seizure of Collateral 14.2.3 Seizure of Collateral
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14.2.4 Mortgage Servicing 14.2.4 Mortgage Servicing
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14.3 Household Decision Making 14.3 Household Decision Making
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14.3.1 Choice of Mortgage Contract Features 14.3.1 Choice of Mortgage Contract Features
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14.3.2 Household Decisions to Refinance or Default 14.3.2 Household Decisions to Refinance or Default
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14.4 Residential Mortgages as a Financial Asset 14.4 Residential Mortgages as a Financial Asset
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14.4.1 Valuing a Mortgage 14.4.1 Valuing a Mortgage
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14.4.2 Mortgage-Backed Securities 14.4.2 Mortgage-Backed Securities
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14.5 Bank Capital Regulation of Mortgages 14.5 Bank Capital Regulation of Mortgages
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14.6 Financial Stability and Residential Mortgages 14.6 Financial Stability and Residential Mortgages
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14.6.1 How Can Mortgages Pose a Threat to Financial Stability? 14.6.1 How Can Mortgages Pose a Threat to Financial Stability?
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14.6.2 Consequences of an Increase in Mortgage Credit Supply 14.6.2 Consequences of an Increase in Mortgage Credit Supply
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14.6.3 Macroprudential Policies and Mortgages 14.6.3 Macroprudential Policies and Mortgages
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14.7 Conclusion 14.7 Conclusion
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References References
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14 Residential Mortgages
Get accessBoard of Governors of the Federal Reserve System
Andreas Lehnert is the director of the Division of Financial Stability at the Federal Reserve Board in Washington, DC. He joined the Fed after earning his Ph.D in economics from the University of Chicago. He started in the household finance research group where he worked on a variety of topics in consumer and mortgage credit. During the financial crisis, he contributed to several projects including various mortgage modification initiatives, the TARP, the 2009 bank stress tests, and the TALF. In November 2010, he moved to the Board’s newly created financial stability group where he participates in a variety of ongoing initiatives to promote financial stability, including regulatory reform, the periodic assessment of financial vulnerabilities, the development of macroprudential tools, and the design and oversight of the bank stress tests; in addition, he supports the Federal Reserve’s role on the Financial Stability Oversight Council and the Financial Stability Board. His research focuses on financial stability, macroprudential policy, banking, and finance.
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Published:07 April 2015
Cite
Abstract
Mortgages are loans to households secured by real property. Mortgage banking has historically comprised three functions: origination (the extension of credit), servicing (payment collection), and funding (financing the loans). Regulatory developments, technological advances, and demand from investors led to the separation of these three functions. Mortgages funding moved towards securitization, contributing to the growth of the shadow banking system. These developments were at the heart of the 2002–06 credit boom in the US and the ensuing financial crisis. Research since then has focused on the causes of the credit boom, the connection between credit growth and house prices, the optimal strategy for modifying mortgages, and the scope for regulation of mortgage markets to promote financial stability—a key part of so-called “macroprudential” policy. Since the financial crisis, underwriting standards have tightened dramatically, both because of new regulations and because of lenders’ increased caution following the outsized credit losses of the financial crisis.
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